May 8, 2009

Tax and income inequalities: insult upon injury

A letter in the May 7 (Woodstock) Vermont Standard expressed the opinion that the rich are unduly taxed to support the poor. I will ignore the absurd accusations implying that the poor have chosen to be so and that even the obscenely rich are justly rewarded for uniquely hard work and wise decisions. And I will ignore the other question raised of whether sharing the risk of what afflicts all of us equally, such as ill health, is not the mark of a civilized society.

The writer cited Congressional Budget Office figures showing that 39% of federal income tax is paid by the top 1% of household incomes, 61% by the top 5%, and 99% by the top 40%.

Actually, the CBO report (April 2009) says that (in 2006) the top 1% paid only 28% of all federal (not just income) taxes, the top 5% paid 45%, and the top 40% paid 86%.

This may still appear to be unfair to those who think the poor should be soaked as much as those who can more easily pay, because the top 1% represented only 20% of all household income (ignoring the fact that they owned about 34% of all wealth and 42% of all financial wealth), the top 5% 32%, the top 40% 75%.

But another way to look at it is how those income proportions change after taxation. After taxes, the top 1% were down from 20% to 16% of all income, the top 5% from 32% to 28%, and the top 40% from 75% to 72%. Meanwhile, the share of the bottom 20% rose from 4% to 5% and the bottom 60% from 25% to 28%.

That's hardly a turning of the tables.

In fact, according to the U.S. Census Bureau data, the real turning of the tables appears to have occurred 30 years ago. From 1947 to 1979, family incomes rose by nearly equal percentages across quintiles: an average of 108%, ranging from 99% to 116%. But from 1979 to 2005, the family income of the bottom 20% declined 1%, that of the middle 20% increased 25%, and that of the top 5% increased 81%.

Progressive taxation helped the bottom 20% somewhat, so that their after-tax income rose 6% from 1979 to 2005, according to the CBO. But the middle 20% lost out, with their after-tax income increasing 21% compared with the pretax increase of 25%. And belying the claim that the rich support their less fortunate compatriots, the top 5% saw their after-tax income rise by 106%, compared with the pretax increase of 81%. The average pretax income of the top 0.01% rose by 484%, while their after-tax income rose by 742%.

It appears that the middle class is paying more than their fair share and the rich less and less towards keeping our country whole.

human rights, Vermont, anarchism, anarchosyndicalism