Misleading charts

[eracerhead.livejournal.com]

I came across this chart on The Heritage Foundation website which I think is particularly misleading.

It shows that the top 10% of earners pay 70% of the taxes, which is true but the problem is they are using a faulty metric, the number is meaningless. Let's add information to this concerning total control of wealth (source) and compare the two:

Percentile	Taxes	Wealth	Disparity
Top 1%	38%	43%	-5%
Next 4%	21%	29%	-8%
Next 5%	11%	11%	0%
Remaining 90%	30%	17%	13%

As we see here the top 10% pay 70% of the taxes but control 83% of total wealth. The Remaining 90% pay 30% of the taxes but only control 17% of total wealth. The bottom pay next to nothing because they don't have any income.

I know this metric isn't perfect either, but I believe it is closer to a meaningful number than the Heritage Foundation chart. I could not find data on total taxes so I know the numbers may be slightly different on the high end. So I ask, why shouldn't this chart be interpreted as a rationale for raising taxes on the top 5%? Is there a better metric that shows raising these taxes is unjustified?

Comments

[eracerhead.livejournal.com]

Assuming that there will be taxes, how should the burdens be allocated in the most ethical way?

[the-rukh.livejournal.com]

Sure they are. Who it impacts the least is a great rationale.

Who is impacted least? The person who has to skip the sun roof of their 4th Ferrarri of the year, the person who will have to put off another couple years until they can own their own home or the person who has to eat ramen instead of whole meals?

[enders-shadow.livejournal.com]

Did you not just see the OP?
Now you've seen it.

Also, what else would justify taxes?

[politikitty.livejournal.com]

How is wealth a good metric? If I save all my salary this year by living at home and eating ramen and pay 25% tax on April 15, why should I be expected to pay tax on that same income next year?

[eracerhead.livejournal.com]

I'm considering wealth as a better metric than population. Do you have a better one?

[politikitty.livejournal.com]

Income. All wealth is income that has been taxed at some point. Even trustafarians paid a hefty 55% rate after the cap.

Why should you look at income earned 20 years ago and taxed at those rates and compare it to the tax rate today?

[the-rukh.livejournal.com]

That seems like a giant red herring.

[politikitty.livejournal.com]

Why? Wealth is past earnings on which prior year taxes were applied. Sure, Alice Walton has 18 billion dollars. But most of that wealth was inherited (incurring a huge 55% tax bill sometime in the nineties) and taxed when earned by Sam Walton throughout his life.

None of those taxes are captured in the 70% of current income taxes, yet taxes were paid. So you're artificially deflating the amount of taxes paid by the rich because it'll make you feel better about taxing the rich.

I'm all for higher taxes. But since it will be an income tax, that means that the taxable basis considered should be income. That's just common sense.

[telemann.livejournal.com]

They pay more in taxes also because their taxable income and assets had increased the most of all the tax brackets; it's just basic math I'm afraid. There's plenty of information that examines that all over the Internet.

[telemann.livejournal.com]

Among the points and statistics he cites in a new column (http://www.nytimes.com/2011/09/23/opinion/krugman-the-social-contract.html?_r=1):

• From 1979-2005, the average real income of families in the "middle" rose 21%
• Over the same period, the average real income of the richest 100th of one percent rose 480%, from $4 million to $24 million.
• So it's no wonder that "rich people" are paying a greater share of overall taxes than they used to--because they're much richer than they used to be!
• Over the past 25 years, the country's tax burden has shifted "from wealth to work," meaning that the country places a higher tax on income from working than investments. This is due to both lower taxes on capital gains and dividends and the payroll tax, which only hits earned income.
• One quarter of those who make $1+ million a year pay an aggregate 13% federal tax rate (including the payroll tax). As Buffett notes, this is presumably less than their secretaries.

[politikitty.livejournal.com]

There's also the added fact that unearned income has increased, while salaries among the wealthy have decreased. If I remember correctly it's gone from salaries have gone from 75% to 60%.

That could be a combination of an increase in retirement as well as the hedge-fund managers.

So that's going to bring that effective rate down for a lot of people.

[politikitty.livejournal.com]

Sure. I don't worry about it from a fairness perspective. But I do worry about the narrow tax stream of the federal government from a sustainability perspective.

If we lose our one percent due to economic shifts, death, immigration whatever, we're suddenly in a very precarious position. It's like having all your stock in Enron.

[telemann.livejournal.com]

If we lose our one percent due to economic shifts, death, immigration whatever, we're suddenly in a very precarious position. It's like having all your stock in Enron.

I think that's pretty unlikely.

[eracerhead.livejournal.com]

I believe that is households, including personal income from S corporations and LLCs. C-type corporate taxation is a completely different animal.

[gunslnger.livejournal.com]

Only income is taxed, so it's misleading to look at wealth in the consideration at all.

[mikeyxw.livejournal.com]

Exactly. That said, some changes in how unearned income is taxed could certainly make sense.

[underlankers.livejournal.com]

The only metric in this sense is "Freedom for me but not for thee." The Heritage Foundation and other propagators of Voodoo Economics are a shame and a disgrace, as is the general embrace of an economic concept that relies on magical thinking and blatant ignorance of human nature.

[jerseycajun.livejournal.com]

Just as an alternative, do you think think the aggregation of Keynesian models sufficiently accounts for human nature? If so, how?