> Author asserts that the poor pay less in taxes after counting stuff that's not taxes.

Except that his statement was already true before accounting for those things.

> According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.

The top 1% tend to have significant income that is not wage based. The rich pay less as a percentage thanks to long term capital gains being taxed at 20%.

Note, the truly rich would consider anyone (no matter how much they make) as a poor wage slave if their primary source of income was wage based.

Capital gains are included in these numbers.

Source: https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...

ctrl+f "Definitions"

Ignoring Social Security, Medicare, State, and Local Taxes etc makes for meaningless comparisons.

Two paragraphs later:

> When assessing the total tax burden facing different U.S. households, looking at federal, state and local taxes is instructive. The federal system is more progressive than state and local systems, but combining them — as the Institute on Taxation and Economic Policy has done — doesn’t change the story: the higher your income, the greater your tax burden. Harvard economist and top Obama adviser Jason Furman confirms this by combining federal taxes and transfers with state and local taxes.

Hold up, I was just looking at that CBO report you linked:

“Income before transfers and taxes consists of market income plus social insurance benefits (including benefits from Social Security, Medicare, unemployment insurance, and workers’ compensation).

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs.”

That’s exactly the arbitrary definitions used to distort what’s going on. I am not saying it’s inaccurate data based on defines used, but all choices are subject to spin. Choices like using 6.2% or 12.4% for Social Security tax rates make a huge difference, and really should be included in these discussions.

PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary.

PPS: Anyway, do you have a link for that report your referencing?

> That’s exactly the arbitrary definitions used to distort what’s going on. I am not saying it’s inaccurate data based on defines used, but all choices are subject to spin. Choices like using 6.2% or 12.4% for Social Security tax rates make a huge difference, and really should be included in these discussions.

Ya, I can certainly see the case that you don't want to include those numbers. However, I don't think excluding them changes the rank ordering of who pays higher rates. Those sorts of transfers will only be salient for the bottom 20%, and excluding them doesn't get them anywhere near what the top 20% or the top 1% pay.

> PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary.

I'm sure you can find a few instances in the continuum where a wealthier person or small group pays less than a poorer person or small group. But I don't think that justifies the claim that our system is not progressive. Broadly speaking, for significantly sized buckets of people, our system is quite progressive.

That isn't to say we shouldn't try to address the issue that prevents the 0.00001% from paying the same rate or higher as the top 1%. We should. But I don't think it is the sort of existential issue that people seem to want to frame it as, and I really don't think it justifies the conclusion that our system is not progressive.

> PPS: Anyway, do you have a link for that report your referencing?

I'm just referencing the CBO report:

https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...

I personally feel the US taxes are generally progressive though not massively so, but significant exceptions exist. For example, the social security tax stops at $132,900 so there is a significant drop in marginal tax rates at that point.

Similarly, including or excluding donations, inheritance, and home sales from income can really change these numbers. I have seen analysis that says are system is progressive, regressive, and flat based on different definitions.

Honestly, that’s what I find most interesting about the system. The collision of a huge number of different interests result in a system that can be perceived mathematically different based on viewpoint. It’s like watching a magic trick in action.

PS: One of the most extreme divergent analysis focused on the sales and sin taxes paid by a group of homeless drunks. It varies by area but with 40+% percent alcohol taxes they where paying a rather shocking effective tax rate when you exclude benefits.

Ya, certainly. I mean, I think the most regressive part of the system that almost nobody talks about is the fact that unrealized capital gains compound untaxed. People focus a lot on the differential treatment of long term capital gains vs income, but I think that mostly misses the point. The real wealth building effect from capital gains comes from allowing them to compound completely untaxed for decades, if the gains are never realized. Unfortunately there's not any obvious workaround for that that doesn't have serious negative consequences.

The important fact is "[percent] of their income" much of the earns at the top end get shifted to capital gains which aren't counted as income and get taxed much lower.

Hm. The CBO report uses the phrase "total income", which I would expect to include capital gains. But it does not explicitly define it as far as I can tell. Do you have a citation for those numbers not being inclusive of capital gains?

EDIT: It does define everything at the end. Total income in this context does include capital gains.

Does the article seriously quote the non-effective rates as the wealthy paying more?

I'm not sure what you're referring to, but the source it cites is this:

https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...

I can't find the word "effective" in there. It just quotes the tax rates.

EDIT: I see what you are trying to say now. And the answer is no, it quotes the effective rate.

What the poster means is that official tax rate before all of the tax breaks, etc.

Maybe the top do officially pay 33%, but if they're able to get that number down to 16%, then their effective tax rate is 16%.

This is a misleading statement. She's paid a salary while he's living off capital gains and they're taxed at separate rates.

https://www.entrepreneur.com/article/338189

That is exactly the point. The tax code privileges sources of income that prevail among those who already possess wealth. That is the definition of regressive.

Capital gains are lower because because corporations pay income tax on their earnings already.

I pay taxes on my income and again at the point of sale.

and you pay capital gains if something you owns appreciates and you sell it.

Is that a good or fair argument though?

I get paid and pay 20% then 40% on the rest (banded)... Then as soon as I buy practically anything I'm taxed another 20% on top of that.

A corporation pays 19% and then those profiting from that owe 7/32/38% (depending on their total income).

Salaries aren't paid out of earnings?

Not exactly, capital gains also cover things like passively growing trees as a land barron.

That is why dividends are subject to special rates, not capital gains.

They're taxed at separate rates, and the net effect is that his tax rate in income from whatever source is the same as his secretary's. Distinguishing by source is more misleading, in my opinion.

No it's not, to even get capital gains you must have kept that money in the market for a year, if you pull out early it's taxed as income.

Nothing about it is misleading.

"Why not tax it all as income?" is the point folks are trying to make. Treating "Real Work" > "Capital Work", because income is income.

You might argue, "That'll dissuade investment!", but when $17 trillion in negative yield bonds [1] (a third of the bond market) are communicating, "Hey there, not a lot of investment dollars needed kthx", that argument falls flat. Your investment dollars aren't needed. There is nowhere productive for them to go. So why have public policy treat their income differently?

[1] https://www.bloomberg.com/graphics/negative-yield-bonds/

This is the right take. When you get to a certain level of income/wealth, it's all about figuring out ways to:

1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary)

2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc)

3. avoid taxes (shift jurisdictions)

4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden

I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.

My argument would not be that it would dissuade investment, but rather limit the ability to achieve class mobility in the United States. It's near impossible to move up an economic class without investment. You can only get so far by saving alone (and it really isn't that far if you are fighting inflation without any return on that cash).

But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further.

Everyone talks like it is only the rich that invest. This just isn't true.

The most likely way one becomes wealthy in America (class mobility) is through starting a business [1]. Treating investment income as income does not change that, when existing legislation promotes reinvesting profits from a business back into a business.

[1] https://whorulesamerica.ucsc.edu/power/wealth.html

even without the bond market signals, the “dissuade investment” argument for the capital gains rate fails miserably. capital wants to be invested if there’s even one dollar to be gained over any alternatives. and no, most rich americans won’t move to vietnam or whereever just to avoid those taxes.

That's absolutely not misleading, but point on.

As you said:

She's paid a salary while he's living off capital gains and they're taxed at separate rates.

And THAT is precisely why the wealthy pay lower taxes!

Please help me understand the subtleties of your comment: he is paying millions in taxes, she is paying thousands and the problem is he is not paying enough?

Correct. The tax rate on the richest few thousand is at a historically low rate. In the great depression era the tax rate was very high for the wealthiest in the nation and they have been very successful at lowering their tax burden over the years, to where we are now, where the billionaire class is paying a much lower effective tax rate than ever before. Taxing the ultra wealthy at a much higher rate can fix our deficit issues without breaking the economy and taking money out of small businesses, for example.

the economic (counter-)argument for higher taxes on the wealthy is that our economy becomes more dynamic and creative when wealth is more evenly distributed. you give more people chances to come up with something cool and ingenious with that capital. rich people get complacent and go after moribund ways to keep and expand their wealth.

plus, the wealthy have benefited more from the system so it’s fair for them to pay more for it. no rich person is mortally worried about their lives if their marginal tax rate goes up to 50%, whereas that would be perilous for the poor.

How far does that argument go?

If Buffett's secretary pays $20k in taxes, and Buffett pays $21k, is that fair because he's still paying more?

How much lower can his tax rate go versus his secretary's rate before it's unacceptable?

No idea. How about a citizenship tax that is a fixed amount for everyone? Perfect equality including equal tax amount.

Why isn't it fair that they pay the same tax rate? That's called a flat tax rate and I'm actually in favor of it because of its simplicity.

I think all income, regardless of source, should be taxed at a flat rate. It's how it works for tithing in a lot of churches, and it's a very simple but effective system.

> Why isn't it fair that they pay the same tax rate?

As Buffett points out, they don't. Buffett's is lower, because capital gains are privileged with a substantially lower rate, because the mega-wealthy largely benefit there.

Income taxes are paid on income earned in a given year. That is, real dollars. Long-term capital gains are paid on growth spanning multiple years. The cost basis is not inflation-adjusted. The latter therefore taxes inflation on assets. The capital gains rate should be lower than the income rate as a consequence. How much lower I take no position on.

Ah, I misunderstood. I think it's a little bogus that the income source determines the tax rate, because then the rich just manipulate their income to use the source with the lowest rates which is a luxury the poor can't afford.

Are the societal effects of a flat tax worth the simplicity?

If you optimize for simplicity, but at some greater cost to having a society that functions for all its citizens and residents, is it worth focusing on simplicity?

The practical burden of a flat tax rate is much greater, the lower your income. Someone earning $10k/year who pays $1,500 is going to miss those tax dollars a lot more than someone earning $10M/year is going to miss $1.5M. Flat taxes are viciously regressive.

As I've already been downvoted for this, I'll explain: the lower your income, the greater the proportion is spent on straightforward living expenses, generally. If you earn $10k/year, all of that will be going on basic necessities, so $1,500 a year in income tax (15%) is $1,500 straight out of your daily/monthly budget paying rent, food, transportation, etc.

The higher you go in income, the greater the proportion goes to things like retirement, investments, entertainment, etc. Millionaires (i.e., earning > $1M/year) paying 15% don't worry about eating well or enough, or being cold at night or losing their job because their car breaks down, or even whether they can pay for college for their kids.

This is why flat taxes are regressive, and if you propose a bottom line exemption (e.g., < $20k/year pays no tax, or less tax), it's not a flat tax anymore, it's a progressive tax, and we're just haggling over the details.