That CNBC article is unbelievably misleading. If you dig into the sources, it links to the actual report [0] where they state that 80% of households paid federal income or payroll taxes:

> Remember, this reflects only those who pay no federal individual income tax. TPC estimates that while the number of households paying neither payroll nor income taxes also rose significantly, roughly 4 out of every 5 did pay one of these two taxes.

The trick is that "income tax" is used as a technical term in the headline, while the colloquial use of it is quite different (average readers would probably consider their payroll tax to be "income tax").

[0]: https://www.taxpolicycenter.org/taxvox/covid-19-pandemic-dro...

I don't think that is really misleading, at least I wouldn't consider Medicare/social security as a part of my federal income tax. When I think of income tax I think of tax brackets and deductions, not payroll taxes which are deducted before I ever receive any income, and which I never really have to deal with.

Based on the headline, I would have assumed that 57% of people had enough deductions/low enough income to be below the bottom income tax bracket. Which is correct, based on what you said.

Even as a technical term, income has like 5 different meanings and contexts in the tax code, only sometimes distinguished by adjectives such as "ordinary", "adjusted gross", "modified adjusted gross", etc

So its very easy to use this to your advantage and appeal to emotion, when convenient, or pass tougher tax laws that never affect you, which is even more convenient.

Key word “federal”. Why specify what specific tax it is? Does it not muddy the waters vs talking about taxes overall?

I did an anecdotal test with a few people near me. They read this as those people pay no taxes. Most people aren’t thinking about the specifics of state, federal, FICA (SS + Medicare), sales, property, and more.

I can’t think of any good faith reason this is done.

> Why specify what specific tax it is?

Because the majority (50%) of the money spent by the US Federal government is mainly from federal income tax.

https://www.taxpolicycenter.org/briefing-book/what-are-sourc...

Right, but the misleading "Don't pay Federal Income Taxes" trope purposefully ignores that they do pay Federal Payroll Taxes -- which per your chart is another 36% of government revenue.

Digging into the report, 43.3% of people didn't pay either in 2020 [1], if that helps you out at all.

[1] - https://www.taxpolicycenter.org/model-estimates/tax-units-ze...

> Why would they be different?

It doesn't make a lot of sense, but the fact of the matter is that the phrase "income tax" as commonly used does not include payroll taxes. "Income tax" refers only to the tax on "taxable income", i.e. your net income after deductions and credits. Payroll tax, by way of contrast, is taken from the very first dollar you make, so the only way you can avoid paying that is if you are unemployed. Saying that "61% of Americans do not contribute to the pool of money that is spent by the federal government as a result of their income" is tantamount to saying that 61% of Americans are unemployed, which is plainly not the case. (BTW, "income" in the sense of "income tax" does include dividends and capital gains, which are not subject to payroll taxes. So it is possible to make millions while unemployed and pay no payroll taxes. That is actually not uncommon. In fact, it's the norm among retired people.)

For others, lisper is replying to the original version of the GP comment which stated that federal income and payroll taxes were one and the same for the 61% number.

Yep, I was 100% wrong, and felt I should bow out of the conversation as a result. I left in the research that made me discover how incorrect I was, to help guide others.

It is customary in cases like this not to delete the erroneous comment but rather to add an [UPDATE] tag at the end to add a correction. This keeps the original thread of the conversation intact. There is no shame in making mistakes. Everyone does it.

I don't agree for a number of reasons, but mostly that I don't think "custom" alone is a good reason to do literally anything.

But I respect your opinion, and I hope you are able to forgive me.

You should add an update to the 43% comment as well to say that percent is only true for 2020 and 2021. Every other year it is usually below 25%. Including going into the future with their simulation. I find a technically correct statistic that helps the same narrative as the incorrect/wrong stat is possibly even worse.

Like the sibling said. It should be an update or edit. Not a change of the comment entirely.

Hope you can make that change as there are a lot of comments that have replied to you.

Cheers for acknowledging you made a mistake. Like many others. That is sometimes hard for me to admit.

Edit: I just looked at this and other articles. They all say to be aware of how isolated 2020 and 2021 are due to the stimulus. I believe it is bad faith to put 43% as the number when for every other year, the number is usually below 25%.

EDIT: This to me is another indicator of the narrative pushing and stat specifying that muddies the waters.

—-

It would be quite helpful if the net worth/wealth of individuals who don’t pay either is given as well. When that 43% figure is pointed out. Generally people only think of lower economic class people. Not situations like the previous president not paying taxes for a number of years.

Otherwise all these stats still do not change my original point that they all muddy the waters and people assume the stats are only referring to lower income individuals or “leeches” who are of lower socioeconomic levels too.

There's also the early-pandemic dip. The stock gains aren't nearly so dramatic when you look at the bigger picture.

The report says that the % of people(tax units) who didn't pay either in 2020 was 20.5%.

The 43.3% was the % of tax units that had a net negative income and payroll taxes (thought I doubt this included the employer side of the tax which for economics purposes falls on the worker). But that was also the Covid year.

Most years it's 25%-22%, which doesn't seem high for the poor, the disabled, and the retired.

Could many of these people be retirees? It takes a lot of wealth to retire and then you don’t pay income tax.

Only 16.5% of the population is over 65 years old. And many retirees do pay income tax. So most of this number is not retirees.

I said “many” not “all.”

The question I have is how to have policies that don’t hurt that 16.5%. It seems unfair to go after the elderly and take away the money they have worked hard to save. They are already being hurt by inflation, which sits at about 5%.

once you combine that with 16 and under, you are getting most of it.

Note the jump from 2019 to 2020. 25% in 2019 to that 43% figure you note here.

That’s fairly important context. 43% is not a typical number, and as you can see in the report, it is expected to return to baseline quickly.

That's not what your link says. The final rows are "don't pay either" (20% of tax units). The one you quoted is from the 2020 data for "Zero or Negative Sum of Income and Payroll Taxes".

Your total tax liability can become zero, even post the 7-ish% Social Security and such, due to the EITC and so on. For example, if you make $20,000 / yr but have two children (made up numbers), you probably end up with a sum of zero.

What does a "sum of zero" mean, in "dollars paid to the US government overall"?

The $300-600/week/person benefit counts as part of that sum (plus the one off checks). So you could have Federal taxes of say $2000 and then benefits of $10000, resulting in a net transfer (sum of "zero" is probably not right, <= zero).

I do not understand your point. The parent is saying FICA/payroll taxes are 36%. That’s revenue for the federal government and some of it is spent by the federal govt.

So I do not understand your first sentence. Maybe you can clarify.

Original comment from parent:

> They do not pay Federal Payroll Taxes, because those are considered Federal Income Taxes. Why would they be different? Taxes come out of their paycheck, of which they get back from the government when their taxes are due.

> The point is that 61% of Americans do not contribute to the pool of money that is spent by the federal government as a result of their income (though they do pay as a result of sales and other taxes).

Payroll taxes are paid by the employer.

>Payroll taxes are paid by the employer.

Half of payroll taxes are paid by the employer. The other half are paid by the employee.

And if the employer wasn't paying that half, they might pay at least some portion of that to the employee. And employers don't pay any payroll tax for non-employees.

Sort of at the Federal level (though these tend to colloquially be understood/communicated as "income taxes" despite being de jure FICA/payroll).

This _isn't_ true at the state level, where payroll taxes may be paid by an employer and not the employee.

In the end it is a wash.

>This _isn't_ true at the state level, where payroll taxes may be paid by an employer and not the employee.

That's not true in my state.

>In the end it is a wash.

Not even close.

Show me a state that has combined (employer/employee) payroll taxes of 15.3%. What's that? No state comes anywhere close to that?

Not a wash by a long shot.

In your effort to create a false dichotomy you have ignored several factors and points.

15.3% is the FICA factor (assuming not above income cap), split evenly between employer and employee. Add on top how the state, municipalities, school districts extract their payroll/income taxes, which can be 100% on employee, 50% on employee, 0% on employee, or none of the above. In Texas, it is 100% on employer. In Ohio, the split mixes and matches with some of the entities charging the employer and employee. Ergo, it's not always a 50/50 split between employee and employer.

In the end, it is a wash whether applied to employer or employee. FICA extracts the same amount, and other entities will extract their amount. Reduction by the employee or employer via credits are typically not feasible or are strongly engineered against.

Thanks, and this is my last comment on this thread. Have a good day.

> they do pay Federal Payroll Taxes

The 36% on that chart is labeled "SOCIAL INSURANCE (PAYROLL) TAXES". Are you suggesting the employer pays these taxes?

Thank you.

Right and so what does saying this achieving? There is still so much nuance as to, in my opinion, make this fact practically useless.

There’s no breakdown of capital gains taxes. Or how much taxes are not captured because of loopholes or tax benefits that go to this segment or that segment of income level or wealth.

OTOH, I don’t know how many services come from local government that isn’t the federal government.

These are simplified examples/points. The point remains both the original stat and this one portray a skewed narrative.

I don’t think this changes anything for my original comment. One could say it even bolsters the case as it is another example of how misleading a quick stat can be.

But the thing is that if americans who don't pay taxes don't own stocks and americans who build most of the social system, the top 10% who pay all those taxes, also own stocks, it might compel someone to say... thanks, rather than "fuck you"... ?

I don't know, if you just redistribute ALL the wealth by murdering the 10% to the rest, what do you think will happen to the taxes ? What will happen to all that "the rich don't pay enough", when actually they paid everything, when it's time for YOU to pay ?

I think that's what all these people in the thread hint at.

I know that’s what people believe and hint at. That’s the point of the original statistic. To give this distorted unproven worldview.

Who do you think does most of the work across the country?

Stock owners aren’t actually doing much. They also aren’t paying high rates of taxes.

why wouldn’t one of these people think why is income tax different than capital gains tax to the extent it is.

Or why their limited money doesn’t allow them to earn money just for having money. While those top 10% can avg close to 10% a year on their saved money in the form of investments (before inflation, fees). Yet there’s no wealth tax or any other way to not make things seem illogical that the mere fact of having money begets more money.

Can these questions not be asked before either thanks or fuck you.

> the top 10% who pay all those taxes,

Do you have any sources around this info?

> There is still so much nuance as to, in my opinion, make this fact practically useless.

Agreed, and so is the title of the thread we are discussing.

> The wealthiest 10% of Americans own a record 89% of all U.S. stocks

Why is the title to the thread just as practically useless? It seems less useless to me. It is at least giving some semblance of the high levels of wealth inequality.

So 50% of the Federal government's income is taxes that every working American does pay.

There are also corporate taxes and estate taxes, and payroll taxes of which the employer must pay half.

corporate and payroll taxes are all paid by employees depending on elasticity, their income would be higher if the taxes didn't exist. True for estate tax.

I dont know anyone that got a substantial pay raise in 2017 when the corporate tax rate went from 35% to 21%. I also dont remember prices declining.

are you sure that corporate taxes are paid by the employee and lowering taxes results in higher pay and lower prices?

Wages are sticky because people generally don't like job hopping. Over time they absolutely lead to higher wages as firms compete for employees.

As far as corporate tax incidence, the literature is pretty clear that they reduce wages. They reduce return on capital too, some estimate that a $1 corporate tax costs capital 60 cents and labor 40 cents from what I've read. Some estimates are 50/50 though. https://www.aeaweb.org/articles?id=10.1257/aer.20130570

https://www.sciencedirect.com/science/article/abs/pii/S00142...

A scenario:

Daddy Warbucks learns that the government is raising corporate taxes. He goes and tells his workers the government has cut their pay. He has no choice. Business necessity.

Daddy Warbucks learns that the government has cut corporate taxes. He pockets the windfall.

There is some business logic behind this: if the windfall is temporary, he doesn't want to raise salaries. That would be difficult to undo if the tax rates go back up. And whether this is the logic that actually motivates his decision hardly matters. Who can know what is in his heart? Even he doesn't. This helps him sleep at night. When he harms others his hand has been forced. When he helps other it proves his essential goodness. Fundamental attribution error FTW!

The logic is that the unions are dead and workers have no bargaining power to demand a raise even with the tax cut.

Yeah, the personal income elasticity with respect to those taxes doesn’t seem appreciable.

"Money spent" != "income". The other 50% is deficit spending.

Look at the chart again. It's revenue, not spending.

True, but manyservices that Americans get from government comes from state and local government: schools, fire/police, etc. The feds dominate the national new coverage, but local government generally has a much larger affect on your day to day life.

I've heard this trope before, but it doesn't seem true to me. The federal government's day-to-day services include universities (through student loans and grant funding), travel (domestic and international), the quality of food we eat, healthcare regulation, and nearly everything to do with employment.

The local governments seem to focus mostly on K-12 schools, and police/fire; plus some one-off errands like the DMV and liquor laws.

The amount of federal taxes I pay is a life-changing amount if I were to get it back in a single check every year, whereas the state/city taxes of sales+property+stateincome is maybe a quarter as much.

100% of the USDs that the federal government spends originate from the federal government. Money doesn't grow on taxpayers.

In fact, it's the citizens responsibility to return the dollars via taxation... One way to interpret government debt is that money is a claim to the entire economy of the country and thus money does not create real wealth, it just makes real wealth liquid.

Also, "federal" here does not include not include payroll taxes, which are, nonetheless, considered "federal taxes" in any colloquial conception of the term.

Of course, in addition to the lying by omission, the true irony here is that the "lack" of "federal" taxes paid by the masses is more so a symptom of a deeply inequitable economic system than the counterbalancing endorsement of the status quo the OP likely envisions it to be.

Your second paragraph and last sentences of the first paragraph are perfectly on point. If I wasn’t so worried I was saying something wrong, I would have seen this an hour ago and been able to just say what you wrote. As this is the actual crux of the matter.

I totally agree, but people pull this same move when comparing our tax rates to European countries. People frame their arguments in a light most beneficial to their points they are trying to make.

Yes well put. Exactly how it goes.

I think you have it backwards. The extremely rich that might make millions or even billions a year but pay $0 income taxes love to play that game and muddy the water by saying they paid taxes…everyone in these contexts is talking about federal income taxes, not sales tax or property taxes.

How about turn your question around and ask why the top CEOs (especially in tech) pay $0 federal income taxes claim they did pay taxes when they are referencing having paid sales tax, as if not paying sales tax is even a real issue, is in good faith.

I don’t think it’s backwards. I think it’s just that the extremely wealthy and other sympathizers love to play the game any way they can. In certain situations, yes they love to say what you said. In other circumstances, they love to only point out how little so many others pay, if at all.

This points to the larger problem of inequality and how the water is beyond muddy now.

There is no way to do that as a CEO. At best your stock holdings can rise, but your compensation will be taxed. The places where you can earn significant untaxed income are via real estate.

All those CEOs that take $0 or $1 salaries and then do press releases about it, how much do you think they are paying in taxes on that salary?

Although you're totally correct I think you're underselling the complexity of the situation.

On paper, the super rich (and even just merely "very" rich) can even show negative incomes [1] because they can a take very low interest-rate loan (which is in a way kind of tax, but paid to the bank) backed by their assets to pay expenses thus they can show no income and no realized capital gains.

But, if you think about it, the practice is not all that different than taking out a home equity line on a house, for example.

So whomever writes that law better be really careful or else the only ones who are going to get caught in that net are the middle class.

Here is a nice article on the subject. https://www.bbc.com/news/business-57383869

[1] They would never actually do that because one needs to harvest that loss. They want to show $0 so they would sell something the balance the negative income out.

Not earning income is a way to avoid income tax.

It might come as a surprise to you but the CEOs that don’t pay income taxes I’m referencing nevertheless receive compensation packages that put them in the 1% of the 1%.

They are tax strategies that aren’t available to the rest of us, otherwise everyone would have a s-Corp/LLC pay themselves $0 salary and take everything they make as a distribution of profit to avoid payroll taxes/Medicare/SS on income, when the little guy does that it’s called tax fraud.

Don't underestimate the inginuity of accountants. There are ways to realize cash flow but show no total compensation.

Shouldn't taxes be thought of as a contribution to some form of spending rather than a purely punitive measure? Why is it not important that 61% of people do not contribute anything to the spending done by the federal government, even if they do contribute to other spending?

Many states receive more federal funds than they contribute in taxes, so according to this mode of argument the population of those states do even worse than contribute nothing.

This is what I said I believe. Are you doubling down on what I said? Like a sibling comment said. The fact that we are confused shows how both the original stat and the technically correct but largely incorrect 43% pay no payroll tax either, are not good statistics. They muddy the water

Per parent comment, those people do contribute to federal spending through payroll and other taxes, even if income taxes make up the largest proportion of revenues.

The fact that you took it that way is evidence of how the original comment is misleading to many people.

I’m not sure how the person took it. I agree the fact that it is taken in some way and I’m not sure which way, is indicative of the misleading quality of the original comment and the comment saying 43% pay no payroll tax (which is only true during the two stimulus years)

61% of people not paying income tax can mean a lot of things. For example, a lot of them don't have to pay income taxes. Children and the unemployed don't pay it.

How about "X% of people paid no tax" which is really the meaning of this.

Here's a page which talks about the effective tax rates of, as far as I can tell, all taxes people in the USA pay:

https://itep.org/who-pays-taxes-in-america-in-2020/

This is far more useful for the discussion about how we pay for common goods than "61% of Americans pay no federal income taxes".

(Never heard of ITEP before this, but they claim to be non-partisan, FWIW.)

Nice ressource, if every country had that we could have a common ground on which to discuss wealth and income inequality

We are missing the real juicy bit- top 0.1%

Federal income taxes are the money that funds the federal government. The military, congress, FBI, courts, EPA, etc. Payroll taxes go to entitlement programs, so they are more similar to paying insurance premiums than actually funding the activities of the government.

The funniest part is that a good chunk of the people who pass along this link in grievance are probably in the group that technically pays no income tax, and don't even realize it.

I don't really see how it misleads the argument in a way that would be considered bad faith. But I do agree focusing on the $0 number does seem kind of arbitrary. A better metric might be percentage of the total tax burden paid by the bottom 50% of the income distribution. Maybe that is 0% if you look purely at federal income tax, and maybe it rises to something like 5% if you include all the other taxes you mention. But I don't think it changes the picture significantly.

I've not looked for a new edition of the report but the CBO has put out reports that calculates net tax rates and more than half of the country are not federal net tax payers (this includes all federal taxes.) And more than 40% of them are so much not net payers that it offsets their entire non-federal tax burden. Ultimately a very large portion of Americans don't pay for any of government and government spending and services.

They do pay, they just get more back out. In a country without any redistribution of wealth and a perfectly efficient government everyone would be a net zero contributor to the government.

In practice most countries have a few hubs where most of the wealth is created (typically coastal cities), and the taxes collected there fund the rest in the form of redistribution of wealth.

Nearly everyone in the US lives in a state with a sales tax (only five do not have a state-level sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.) And, of course, nearly everyone buys something regularly, whether food or clothing or other necessities of life.

It's 100% absurd and untrue to say "a very large portion of Americans don't pay for any of government" when most of us pay something every time we get a box of crackers or put gas in our tanks.

And if you're going to follow up and clarify with a much narrower way that your statement could be taken to be true, then I'd like to know why you opened with "a very large portion of Americans don't pay for any of government" instead of that much more specific -- and much less "the poors are getting a free ride" -- statement.

You need to understand that I'm talking about net taxes. Referencing [0], the bottom 20% of households have a median market income of $15,800. They receive $9,600 in transfers and services. Their pre-tax income is $25,400 and they pay $800 in taxes. States and municipal taxes vary, but even high sales tax states and counties have rates of 15% or less. Let's call it 20% just to be extra generous in the discussion. Take their $24,500 in after tax dollars and spend every bit of it and pay 20% on all transactions. These households have paid $4,900 in non-federal taxes. So their net contribution across all levels of government is $4,900 - $9,600 = $-4,700. On a net basis, they don't pay for any part of the operations of the country at any level because the federal transfers pay for all of their non-federal tax burden.

If you look at the second quintile and do the same math, you also get a negative result. Only at the middle quintile does it even become possible for them to spend so much locally that their local taxes offset the amount in transfers and services.

I stand by my statement that a very large portion of Americans don't pay for any government. Assuming you consider ~40% of Americans to be a very large portion. I didn't say a majority, just a very large portion. Though it is possible that a majority of households don't pay for any government, depending on the specifics of their local tax rates and spending habits. If the middle quintile doesn't spend ALL their money at a local average tax rate of 12.8%, then they don't contribute either.

0. See page 31, table 1 of 2013 Distribution of Household Income and Taxes [pdf], https://www.cbo.gov/sites/default/files/114th-congress-2015-...

Because almost everyone who purchases anything pays 'sales tax' and almost all homeowners pay 'property tax,' but the problem we care about is income/capital gains tax evasion.

If that’s the problem that is cared about. Are you saying going after the lower socioeconomic class of America is how to get back those evaded taxes?

The narrative in general for the statistic is about lower socioeconomic people. If this was a good faith caring about tax evasion. Why would the focus be on the people with the least income and wealth?

I don’t think it would be if that was really the problem being cared about.

And yes the sales tax is part of the point. To give nuance to such a simple statistic.

We are going back to a time where the church and nobility are exempt from taxation and the monarch in desperation keeps squeezing the peasants.

Yeah, Brookings or whatever cesspool that made this left out those taxes as part of their narrative.

I included them to counter that narrative and the you RAN with my intent.

EDIT: To that point, you can absorb statistics from an organization but still disagree with their editorializing.

> They read this as those people pay no taxes

Nobody on earth would ever read "not paying federal taxes" as meaning also not paying social security, medicare, sales or property taxes.

Of course not sales tax. However for the rest, yes people would. People are quickly reading the stat. They aren’t thinking deeply or in a nuanced fashion. They aren’t on a forum like this. They are going about their day.

You agree not everyone knows what payroll taxes specifically go toward or that there’s even a separation of federal income taxes and payroll taxes as distinct things, right?

Social Security and Medicare are federal taxes so hopefully some people are aware of that.

This is an odd line of reasoning.

It's like responding to "Joe didn't pay for his main course at the restaurant" with "yeah but he paid for some of the appetizers."

The fault in your logic here is that in your metaphor joe ate the same as everyone else at the restaurant.

The benefits of society as a whole are not equally shared. The wealthiest in society benefit the most from a functioning and stable federal bureaucracy.

> in your metaphor joe ate the same as everyone else at the restaurant.

That's not anywhere in my metaphor.

> The benefits of society as a whole are not equally shared.

This is true but not relevant to my point.

> The wealthiest in society benefit the most from a functioning and stable federal bureaucracy.

This is less likely to be true and also not relevant to my point.

If you’re going to be that pedantic about it, you also never stated that joe ate anything at all, maybe joe paid for apps and just sat there while everyone else ate.

At this point I’m not sure what your point is if its truly your assertion that none of my assumptions were valid. (My assumptions being that we are talking about who assumes responsibility for paying for the benefits of society/governance)

> we are talking about who assumes responsibility for paying for the benefits of society/governance

This has essentially already been decided. The topic is tax avoidance, which I compared to skipping out on a bill that ought to be paid.

It's a pretty standard free rider problem. It doesn't change the problem to point out that the free rider benefits from the ride (which, of course they do) or that they benefit more from it than others, or that they paid unrelated bills.

You’re making a pretty strong assumption that these statistics are a result of tax avoidance. I find it extremely implausible that majority of people who don’t pay income tax are doing so as a result of complex financial schemes. Taking the standard deduction or simply claiming straightforward deductions like the mortgages interest deduction is not tax avoidance when done in the spirit of the law, which, anecdotally, is the case for most middle to low income filers.

I’d need to see some proof before assuming the statistic is a matter of avoidance rather than of explicit tax policy. If you’re claiming people who are in alignment with official tax government policy (again in the spirit not just the letter of the law) are free riders, then we are back to who should assume the responsibility for paying. As stated in my previous post.

> If you’re claiming people who are in alignment with official tax government policy (again in the spirit not just the letter of the law) are free riders, then we are back to who should assume the responsibility for paying. As stated in my previous post.

Sure, I agree with this assessment up to first order. But this is a bit slippery because of second order effects where you can pay to have a favorable tax code created (or at least pay to substantially increase the odds of such a policy being created).

> Taking the standard deduction or simply claiming straightforward deductions like the mortgages interest deduction is not tax avoidance when done in the spirit of the law, which, anecdotally, is the case for most middle to low income filers.

I agree with this.

> I find it extremely implausible that majority of people who don’t pay income tax are doing so as a result of complex financial schemes.

For the short-term Covid-related spike of people not paying due to unemployment and temporary tax credits, sure I agree. In general case, though, the schemes don't have to be very complex and you can just pay people to set them up for you.

Also, the number or percentage of people who don't pay income tax is an indicator of how easy tax avoidance has gotten. That's why that number is quoted. But since the distribution of wealth is so skewed, what really matters in the free rider context is the amount of money not paid into the system.

And for this I don't think it's at all implausible (and is in fact consistent with what we know) to say that the wealthiest Americans pay extremely low income tax rates because of tax avoidance. (Here I am including the creation of favorable tax policy as tax avoidance if it's contrary to the spirit of the US's policy of progressive income tax.)

I guess what’s confusing for me is that the “63% of people don’t pay income taxes” line is usually trotted out to say that the rich are the only ones who pay taxes and everyone is just a welfare queen or something. But it sounds like you are trying to say that it shows that tax avoidance is a real problem and that this a primarily a symptom of the rich being able to hire tax evasion specialists.

If that’s the case then there’s no disagreement from me.

Ah okay, that makes sense then. Sorry about my confusion.

I don't know the motives of the original poster. Since the article was about how the top 10% own ~ 90% of the stock, I assumed the relevance of the income tax figure was that it was related to its impact on wealth inequality.

Perfect response!

Your profile is blank. If you’re up for it. Look at mine and send me an email. Every other comment I saw where I knew the comment was not logically sound but couldn’t quite word it right. You were there already having written a great response.

Thank you for your comment! I’m going to consider reaching out, but I also like keeping my account pseudonymous so I’ll have to figure some things out.

Of course, understand your concern.

I haven’t updated my HN in forever. It is updated now.

If you ever reach out as someone who discovered the community I co-founded or even just try it out. I nor any one else would ever know you are this current handle. Since there’s a few inquires a week and they range a lot.

Do you pay sales tax on purchases? SALT deductions also reduced those paying federal taxes paid when they were still around. Agreed that people misunderstand it quite easily.

Because most people are smart enough to understand that they mean federal income tax. Especially when comparing the entire country, or talking about federal tax policy.

At the Federal level, it is more useful to talk about net taxes of all types. That is, taxes of all types paid to the Federal government (income, excise, payroll/social, etc) after subtracting all transfers and distributions to the taxpayer. This is a more accurate accounting of the situation. It paints a slightly different picture, but not that different.

It turns out that only about 20% of taxpayers send more money to the government than they receive in aggregate across all forms of taxation and transfers. Another 20% of taxpayers roughly pay their own way, providing about as much tax revenue as they receive in transfers. 60% of taxpayers receive more in transfer payments and other distributions than they pay in taxes (not that surprising with things like Social Security).

tl;dr: across all Federal taxes and transfer payments taken as net, 20% of taxpayers are paying taxes that are transferred to 60% of taxpayers.

Individual States have diverse taxation structures, so the net taxpayer statistics likely vary widely.

Several states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming) don't pay any state tax. I'm sure you could make a statement like "85% of US residents don't pay state tax" that would be true but also be incredibly misleading.

Just to clarify (I believe this is what you were hinting at), they dont pay any state income tax. If you look at sales/property taxes for those states you can see some of them make up for the lack of income tax.

Right, yes, the point is that state taxes can get very nuanced which is why I'm guessing they weren't included in the analysis.

New Hampshire doesn't tax wage income. It does tax unearned income.

That's even worse. It presents even more clearly that the United States has been captured by the upper class, who pay all the bills but also receive all the proceeds (aside from small supports to keep the lower and middle classes working and productive).

This isn't much different than Rome, which of course the US is modeled on.

The only solution is a wealth tax for the next 10 years which dovetails into more sensible taxation on capital gains to prevent this from happening again.

The thing is that most CEOs of Fortune 500 companies aren't even in the 1%, which requires $11.1MM in assets:

https://www.investopedia.com/financial-edge/1212/average-net...

The Fortune 500 CEOs might be closer than you think. Median pay last year was $12.7 million.

[1] https://www.equilar.com/reports/83-equilar-associated-press-...

$12.7MM/year taxed at 30% (remember, these are workers) means $9MM/year. Presuming they spend half of that it would take 3 years to get to the 1% threshold ... many CEOs don't make it 3 years.

Basically, Fortune 500s are probably minting about 100-200 1 percenters a year. A drop in the bucket compared to inherited and capital gains wealth.

> This isn't much different than Rome, which of course the US is modeled on.

Do you have a source for either of these claims? I can’t seem to find a clear one, especially for the latter claim.

Here's an academic article on how ancient Rome influenced the writing of the US Constitution:

https://www.jstor.org/stable/3290141

> Here's an academic article on how ancient Rome influenced the writing of the US Constitution

Influenced. Not modeled on. Every republic since Cæsar has been influenced by Rome, including but not limited to its discussion on the relative benefits of monarchy, oligarchy and democracy.

What Republic has had the most influence on the USA?

There were very few republics between the fall of Rome and 1776. All basically local governments and very feeble.

> What Republic has had the most influence on the USA?

Not a republic, not technically, but the English Parliament, no doubt. Bicameralism, impeachment, an executive cabinet--these did not exist in the Roman Republic.

Of course, English democratic tradition was influenced by Rome's. As was America's. But it's a stretch to say the U.S. was "modeled" on the Roman Republic. It was a new system of government. (If one were to claim it was modeled on anything, it would have to be the English government.)

"Modeled on" doesn't mean singularly Rome. It just means that Rome was one of the models.

From what I remember (I did a masters in history about a decade ago), Eran Shalev's _Rome Reborn on Western Shores_ was the main book on the subject (edit: the subject being Rome / the classics and early American political culture generally, not specifically the US Constitution).

That said, there was some debate over the influence of Rome on early American political debates, with others citing either "classical republicanism" or the pre-English Civil War debates on the English constitution as more important influences (for example, JGA Pocock or Gordon Wood).

I assure you that people would happily trade paying some taxes for owning any assets whatsoever.

If this were true, they would spend more of their discretionary money on assets rather than consumer purchases.

Lower classes spend 100% of their discretionary money' on assets, 'it's just that their 'discretionary money' is 0.

> Lower classes spend 100% of their discretionary money' on assets

Assuming you mean non-discretionary expenses. If so, that describes a third of Americans, down from half in 2002 [1]. A strong majority of Americans (a) get more money from the government than they put in, (b) own assets or (c) route discretionary income to consumption over asset accumulation.

We have an inequality problem. But the facts paint a more moderate, and thus addressable, picture than the pundits.

[1] https://www.marketingcharts.com/industries/financial-service...

> If so, that describes a third of Americans, down from half in 2002 [1]

Your source is from 2007. I don't have that particular figure; but in 2019, the bottom 50% of the wealth distribution continue to own almost nothing, the top 10% of the wealth distribution own 71% of all assets and the middle 40% own about 28% [1].

> A strong majority of Americans get more money from the government than they put in

This is literally the point of taxes: to redistribute resources.

> (b) own assets

See above, but ownership of assets is distributed incredibly unequally.

> (c) route discretionary income to consumption over asset accumulation

This argument that poor people remain poor because they make bad choices (formally called "culture of poverty") has been heavily criticized. Most economists and sociologists now reject it and have done so for over 30 years.

[1] https://wid.world/share/#0/countrytimeseries/shweal_p50p90_z...

> poor people remain poor because they make bad choices

Not sure where it was called a bad choice. It's simply a preference for consumption today over asset accumulation. For most people, that's a fine and comfortable way to live.

The problem is, most consumption is not actually flexible - it's semi-fixed cost (i.e. shelter, food, transportation). And those don't vary enough for asset accumulation to be possible at the lower end (especially when you include externality cost from things like eating cheap food).

The difference between earning $100K and $500K for most developers, for example, is [most] of that extra income going into investment assets; that's because the first $100K covers most of the fixed costs, and short of luxury purchases, there's not much more you need day-to-day. The gap between earning $30K a year and $100K a year is way bigger in terms of QOL than between $100K a year and $1M a year.

(I'm in between both worlds in a way since I have friends making < 30K a year and > 200K a year and I have two careers, one high income and one relatively low income and have thought about the issues quite a bit)

"Bad choices" from the perspective of wealth accumulation. Regardless of how you want to frame it, the idea that attitudinal differences prevent poor people from accumulating wealth is no longer taken seriously by most who study the field.

> "Bad choices" from the perspective of wealth accumulation

Which is not a paramount motivation for everyone.

Yeah, the addressable part is where you take the wealth that has accumulated among people who don't spend it, and distribute it among people who do.

It's very simple.

There is a lot of people in lower classes who spend money on stuff like netflix thats 100% discretionary. Or buy iphones instead of el cheapo ones. I say this from personally knowing a lot of people who do this. I dont really blame them for it, since its kinda the pervasive expectation, but still a lot of people spend on "wants" instead of longterm assets. Now the funny thing is the income isnt always really discretionary, I known people who bought stuff they didnt really need then got their power cut off cause they couldn't pay the bill. Its a mess.

No one is getting rich by diverting that $13.99/mo Netflix subscription -- that's $168 a year -- into asset purchases.

As a nearby comment said better than I could (thanks whakim! for https://news.ycombinator.com/item?id=28907429 ), the "culture of poverty" idea has been discredited for decades, yet it persists because it's certainly easier to blame individuals than change a system that so severely disfavors them.

No but somebody might get less poor by not having to less stuff on a creditcard then pay high interest on it. Or not making minimum payments then getting a higher interest rate later. Compound interest is a bitch and a small debt can blow up real fast.

Your link just says "most economists and socioligists agree" btw, it didnt source it. Also it said the point of taxes is to redistribute resources which us heavily contested and a lot of ppl disagree, stating that as fact not opinion makes the other stuff it says look less credible because clearly it has an agenda.

> clearly it has an agenda.

So does suggesting that a poor person could join the moneyed elite by foregoing their $13.99/mo Netflix to purchase assets -- if that isn't an agenda, I don't know what is.

Why, by saving that $168 a year, they could easily afford a single share of Alphabet (currently at 2,846.31) in, what, 16 years?

Bruh. I didnt say "join the moneyd elite". It doesnt matter if some ppl have more, only if some dont have enough, this is why I hate the "inequality" talking point, bc its not an inherent problem.

Im saying that some people who dont have enough could be in a better spot with better choices and that some personal finance education might help. Not everybody privileged enough to have parents who can teach them to be financially savvy. So high schools probably should.

The netflix subscription is a distraction. So are the lattes and everything else people keep harping on about for personal consumption.

Salary, salary, salary. If you're making $200K, none of the above even register (saving $200 a year? or even 2K by forgoing a latte every day - who cares? it won't make an iota of difference). If you're making $30K / year, you could do all of the above, forgo every single pleasure in life and you've still got a huge uphill battle.

The idea that saving and investing 2k/year "wouldn't make a difference" is pretty funny, since investing 2k/year gets you ~300-400k (inflation-adjusted!) after 40 years (roughly the length of a typical working career).

But that's not really the point, I think. The idea that (most) people remain poor for reasons _other_ than their choices is difficult to credit. Obviously their choices are only the _proximate_ cause; there may be structural factors causing those choices in the first place, but most people who are poor (as in, do not have assets) are not poor because they are being literally robbed at gunpoint. Imagine two people living in the same neighborhood:

Person A makes $30k/year and saves nothing. Person B makes $35k/year and saves nothing.

Person B is _making choices_ that are different from Person A - they are spending an additional ~5k/year on _something_. You can come up with all sorts of reasons why those choices are reasonable - I sure as heck understand not spending the bare minimum on life's necessities - this isn't a moral judgment! But those choices are being made and they have fairly predictable long-term consequences. If it's possible to live on 30k/year in some set of circumstances, anyone who then occupies comparable circumstances and earns more than 30k/year has a choice to either live below their means... or to not do that. You don't need to call them "bad choices" for this to be true.

Certainly there is a non-trivial number of people whose starting circumstances were such that they truly had no good options, but that's not most people who could reasonably be described as "poor".

i think its more of a mentality thing than anything.

Sure, that is a valid excuse for the bottom quartile of income earners for not saving, but not the middle class. There isn't enough demand in the wealthiest 10% to warrant 15,000 Starbucks locations

That's not how it works in reality.

https://www.investopedia.com/terms/m/marginalpropensitytocon...

Let them eat cake?

'discretionary income'

At a median wage of 50k a year...is there discretionary income or are large amounts of people living paycheck to paycheck in America?

What is the mode wage in America though?

Probably minimum wage of some suitably populous city or state. Why in the world would the mode be relevant though?

Is not the most common wage more relevant to the issue than the middle? Though I should've asked about the mean, I'm still waking up.

No. For example you could have 10 people making the minimum wage and 50,000 people making a salary of $50,000 -> $100,000(1 person for each salary in that range). Mode would say the most common wage is minimum wage.

This is true only for those of us privileged enough to have discretionary income. Which is not all of us :)

And having functioning public services like healthcare.

I don't pay any federal income tax on the first x dollars of income I earn either. This is nothing but a recognition that money has diminishing marginal utility.

The issue is that there are too many people earning less than x.

But do the wealthiest 10% pay 90% of the taxes? Answer: nope. Eventually there's a reckoning for this discrepancy, but that's why we have corporate media to delay that as long as possible.

https://taxfoundation.org/publications/latest-federal-income...

From your link it says the top 10% received 47.7% of gross income but paid 71.4% of total income taxes paid.

Why do you think that if they receive 47.7%, they should pay 90% of the taxes?

Because they own 90% of the toys and I think we should be taxed more on our share of the toys as opposed to our annual take of toys or we are eventually heading for a nasty tragic unproductive violent revolution. But thank you for playing. If you can make the singularity happen instead and then end scarcity that'll work too, but good luck with that.

Also if you haven't figured out by now that the investor class has figured out how to shelter almost all of their income from taxation, you haven't been paying attention. Time to make them work for their tax dodging ways again IMO.

I am also aware of previously badly implemented wealth taxes that hit just about everyone because of their very low threshold. So have a high threshold this time, say 10 or 50 million $$$, problem solved.

Maybe I would feel differently if I were one of the lucky few with a bug out bunker/castle/estate in New Zealand or inside a dormant volcano, but alas.

But they very likely paid sales, property taxes, tolls, and service fees

And payroll taxes, everyone always forgets payroll taxes.

On top of that, forget that social security part stops at ~$120K-ish. I realize that you are supposed to get a lot of it back, but can you guarantee 100% that will be the case to an 18 year old right now. More than that, it doesn’t exactly fit in with the system that a safety net for when you’re 60+ is forced upon people via taxes that stop mid way through the top 5%+ income amt. it is almost farcical

The wage limit for 2021 is $142,800 and it's increasing to $147,000 in 2022.

https://www.ssa.gov/oact/cola/cbb.html

>The wage limit for 2021 is $142,800 and it's increasing to $147,000 in 2022.

While I always enjoyed having that extra ~6.25% in my paycheck after I hit the limit every year, it didn't make any material difference in my spending/saving or quality of life.

I expect that's the case for most (if not all) folks who exceed that limit.

And since removing those limits would keep the US social security and medicare chugging along nicely for the next 50 years or so, while not doing so will require cuts in benefits within a decade or so.

While it's not a certainty, it's more likely that we'll come up with better ways to fund healthcare in 50 years rather than in ten.

As such, it makes sense to remove those wage limits on FICA[0] payroll taxes.

[0] https://www.investopedia.com/terms/f/fica.asp

Social security has never made sense to me. Not only do wealthy people get to collect social security, but they actually get paid more than less wealthy people, by design. All the money is going to the people who don't need it. Why would the left support something so unequal, and why would the right support a forced savings plan with such bad ROI?

It seems so wasteful. Its a terrible deal for everyone involved, really. Those who made a lot of money and had to pay a lot into SS made terrible returns and would have been better off investing the money. Those who only made a little, and only paid in a little, do not get paid enough to live off of anyway and would have been better off seeing that money in their paycheck.

The only people who benefited from SS were the people retiring soon after is was implemented. Everyone else is worse off, but nobody wants to get rid of it because then they won't get to collect.

And payroll taxes, which are practically targeted towards the poor in order to parody an savings account.

None of these are federal taxes though. From that set, they likely paid a lot of payroll tax, which is a fancy way of saying "income tax paid to support social security & medicare" that is kept distinct from "federal income tax" when these sorts of statistics are trotted out.

How is that related? I believe that statement is completely unrelated. And possibly flamebait.

> Related: 61% of Americans paid no federal income taxes in 2020

It means their income is very low: OP is just pointing out how US society is very very polarized between a small group rich owners (10% that own almost all the stocks) and and a big group of poor people (60% of the population).

Is it including children and the elderly?

100% of all tax payers paid taxes.

Governments should be forced to choose between collecting income taxes _or_ taxing everyone through the general monetary inflation (a.k.a. money printing). They currently practice both - the income tax taxes the non-rich, and the inflation also only taxes the non-rich, because the freshly-printed money goes to the rich.

One of the reasons central banks and monetary policy have taken on such a strong role over since the 2008 financial crisis is an unwillingness to have honest discussions about taxation. If we want "nice things" however you define them, it's easier to outsource the details to an amorphous central bank than actually discuss a just and equitable tax regime that can support those things.

The central bank doesn't really do "inequality" in the sense that getting rid of the central bank will get rid of the inequality. It can only amplify or maintain a trend. The fact that earning money from stocks is profitable than earning money from work is something that can be easily explained by the tax system.

I agree with you that central banks don't have the tools to solve inequality in the long run (as you point out, the tax system and spending does). I'm simply noting that we've collectively invested central banks with magical powers because of our unwillingness to actually discuss taxation.

The entire point of taxes in the modern day is a polite fiction to prevent money-printing from ending up like the Weimar Republic or Zimbabwe.

There's a $10k deduction for state taxes. If the state tax rate is greater than the federal rate, then they won't pay federal income tax. Also, federal income tax doesn't include payroll taxes. Indeed, the last paragraph mentions this:

> Federal income taxes do not include payroll taxes. The Tax Policy Center estimates that only 20% of households paid neither federal income taxes nor payroll taxes. And “nearly everyone” paid some other form of taxes, including state and local sales taxes, excise taxes, property taxes and state income taxes, according to the report.

Nice cherry-picked, but meaningless, statistic you've got there.

> There's a $10k deduction for state taxes. If the state tax rate is greater than the federal rate, then they won't pay federal income tax.

That would be true if it were a credit, but it is a deduction.

The $10k SALT deduction does not apply to the 90% of tax filers who do not itemize since the standard deduction is worth more.

Also related (and not spun in a way to make it seem like 61% of Americans aren't paying their fair share):

From 1975 to 2018, the difference between the aggregate taxable income for those below the 90th percentile and the equitable growth counterfactual totals $47 trillion.

"Trends in Income From 1975 to 2018" https://www.rand.org/pubs/working_papers/WRA516-1.html

In what way is that related?

It's related in that it morally licenses the privileged to be OK with wealth inequality because, see, the masses are actually being supported by the magnanimous benevolence of their betters.

Owning stocks is one of the ways to avoid paying taxes?

I just filed my taxes on Friday, the last date of the extension. When you change the tax code 3 times in one year, after overhauling it a few years earlier, it can complicate the ability to report.

Also the 2020 tax code changes allowed for 100% deductions against your income for donations to some kinds of non-profits. That plus being able to withdraw from 401ks, plus having large drops in income, means many people would not have anything to pay. You can always spend more than you earn (on certain things) and nullify your taxes that year. You just have to have more than you earn already, whether its savings, credit card debt, or other capital. So it should be obvious thats not an experience most people ever have, if they are barely making ends meet to cover living costs monthly. But its always available.

Might have something to do with this: https://christiankull.files.wordpress.com/2020/06/economist-...

Wondering what that looks like after taxes.

Taxes on the rich went down during that time https://www.nytimes.com/interactive/2019/10/06/opinion/incom...

https://static01.nyt.com/images/2019/10/04/us/tax-trump-weal...

Specifically how Europe compared after taxes.

And if we do the accounting, we'll find that most states paid no net federal taxes in 2020, and are wholly dependent on states that did.

Is there a particular point you are trying to make, here?

That's because of the covid downturn, though. A ton of people saw a rapid shortfall in income, but it's was (as the article calls out) transitory. It doesn't reflect what we saw in 2019 or will see this year. Questions about wealth distribution are, by definition, not transitory.

Even during a "good" year, though, the number is still around half. (Recall Romney's "47%".)

That's true, but (especially when spread by politicians) terribly spun.

Almost half of americans have no federal "income tax" liability. They still pay a ton of federal tax on every paycheck they receive. Their income is absolutely taxed.

That's just not true. It might be taxed at the state or local level, but a lot of people simply don't pay federal income tax (and in fact receive a relatively large refund at the end of the year).

(many people get confused and interpret social security and health insurance withholdings as taxes).

Many people refer to payroll taxes as payroll taxes, yes.

Especially since they are, literally, taxes.

I would probably even go so far as to call insurance a tax as well since I am legally required to pay it. I may have my choice what company administers my policy but they're effectively private arms of the government.

There's no federal tax penalty anymore as part of trumps tax cut. Some states are enacting state tax penalties now though

It will definitely reflect what you see this year, and probably a few years to come. It hasn't gone away, international travel is not the same (changing who is available to work due to reduced emigration), supply chain disruptions and reconfigurations continue. The workforce has changed, too, wealth inequality is now on the forefront of many people's minds, remote work is more prevalent than ever, and it has changed how people are engaging with work.

We do not know that COVID impacts are "transitory". It is only by assertion, by people who I would say have all the motivation in the world to claim they are "transitory". At the moment I can't provide any evidence that they are "transitory" beyond the bald assertion. They can just as easily be permanent.

We won't know for at least another five years at a minimum.

A decent chunk of adult Americans are effectively on the margins .. not contributing much at all to the economy. It's sad but a reality

The "economy" is not just what is captured in formally taxable income. Large swaths of the economy is composed by absolutely essential reproductive labor that receives no direct monetary compensation. Conversely, the existence monetary income doesn't necessitate that economically meaningful or necessary labor is being performed, just that it is being compensated for in a formal manner.

Then, of course, there's unearned income -- very much so related to the topic of "stock ownership" that started this thread -- which, by definition, is acquired not through any meaningful contribution of labor to the "economy", but instead as a reward for the incidental private claim to profits our economic system happens to allow to people.

They still do a big chunk of the work.

This just in, poor people don’t have much money.

Do you expect to squeeze blood out of a stone as well?