You can’t measure tax progressivity while ignoring income trends

Mark Thoma does a terrific job explaining why the purported measure of tax progressivity favored by many conservatives doesn’t measure tax progressivity. Former George W. Bush Press Secretary Ari Fleischer, the inspiration behind Thoma’s post, insinuated that those lucky duckies at the bottom and middle of the earnings distribution should be paying more because their share of federal taxes paid has been falling while that of the top earnings quintile has risen substantially since 1979. As Thoma elucidates, Fleischer’s captious reading of the Congressional Budget Office’s series on average federal taxes by income group ignores the heavily skewed income trends of the last 30-plus years.

This State of Working America chart depicts just how lopsided those gains have been: The top 10 percent have captured 64 percent of economy wide income gains, while the bottom 60 percent of earners received only 11 percent of income gains.

Data compiled by economists Emmanuel Saez and Thomas Piketty show that this trend intensified during the Bush economic expansion, when the top 1 percent of households captured a stunning 65 percent of income gains, leaving just 13 percent for the bottom 90 percent of households. (The top 1 percent of households was simultaneously rewarded with 38 percent of the Bush-era tax cuts, when fully phased in.) These data don’t square with calls to shift the tax burden from capital to labor, and correspondingly from upper-income households to the middle class.

A progressive tax system embodies the principle that groups with more resources should pay a higher portion of their income in taxes than groups with fewer resources; taxes as a share of income—or effective tax rates—are intended to rise with income. Ignoring income necessitates disregarding this proper measure of tax progressivity. By Mr. Fleischer’s concept of tax fairness, Mitt Romney’s 15 percent preferential tax rate is a non-issue and there’s no need for a Buffett Rule. Similarly, ignoring effective tax rates is terribly convenient for conservatives attempting to shift the distribution of taxation down the income distribution, as proposed in many of the former and current GOP presidential candidates’ tax plans.

Without looking at taxes paid relative to income, one ignores ability to pay and progressivity, period. This may be politically expedient for those who want to abolish the Sixteenth Amendment and replace it with a regressive flat tax, but it’s intrinsically problematic when income inequality has returned to Gilded Age-levels. A greater degree of progressivity must be restored to the tax code, which must also raise more revenue for the realities of an aging population, spiraling health care costs, and a large structural budget deficit. Specious concepts of tax fairness cannot be condoned; they mask deep, growing inequities and provide cover for regressive tax plans that would further exacerbate income inequality.

  • Anonymous

    The top one percent increased their share of personal income from 8% to 17%, post-tax and post-transfer, according to CBO report “Trends in Distribution of Household Income, 1979 – 2007″ page 8. See for yourself. If that 9% change of all income were distributed to the lower-earning 60% of households, all those 70 million households would increase their annual incomes by 50%, year after year. Whether a $12,000 income increasing to $18,000 or a $50,000 to $75,000 a year, all below the 60th %tile would see income increase by half again. What country would you choose to live in? 

  • bewen1

    Is it possible for you to focus on the “tax shift” that has taken place since WW2 – that is the reduced progressive taxes, and increased regressive taxes – property, sales, excise etc. that makes the total tax package increasing regressive? That needs to be made clear to tax advocates, low income and working class voters. Thanks.