Regular commenter John Personna flags this chart at Econbrowser:
The chart, presumably crafted by Menzi Chinn, is compiled from CBO data and is presented as a continuation of a discussion from a couple years back sparked by an infamous column by Todd Henderson complaining that rich people aren’t so rich as people think, once one deducts the perquisites of a rich person’s lifestyle such as a huge house, private schooling, and a full time nanny. It’s also somehow supposed to undermine “beliefs held in the fevered imagination of some commentators that taxes have risen enormously under the current Administration.” How it does that, given that it ends with the Bush administration, is not immediately clear to me. But then, I’m not an economist.
Regardless, two things strike me as interesting here.
First, the top quintile is lower than commonly imagined. President Obama is proposing to extend the Bush tax cuts for those making under $250,000 and even many Democrats think the threshold should be $1,000,000, which they consider more in line what it means to be “rich.” But even the $250,000 figure is well into the fifth quintile–and more than twice the entry threshold for the fourth quintile. Indeed, as shown by a second chart, we’re talking about numbers above the 95th percentile.
Of course, being in the top 20 percent–or even the top 5 or 1 percent–doesn’t necessarily make one “rich.” That’s as much a philosophical concept as a numerical one. Indeed, for all but the mega-rich, “rich” is generally somewhere well north of their own income because, after all, they have financial worries and limitations on their purchasing power.
Second–and this is particularly striking–the nature of the redistribution of the tax burden is substantially more progressive than I’d imagined. Because the top tax has declined dramatically while the lower rates have not, I’d have assumed that the burden on the highest quintile would have plummeted. It hasn’t.
The Econbrowser chart starts with the last year of the Carter administration and ends with the last year of the Bush administration. When Carter left office, the top marginal rate was a whopping 70 percent, as it had been since 1971. When Bush left office, the top rate was 35 percent–down from Clinton tax hike of 39.6 percent but higher than the 31 percent tax hike that helped drive his father from office. Yet, in 1979 the top quintile was paying what looks to be 27 percent*; in 2009, they’re down to something like 24 percent. By contrast, the lowest quintile went from 7.5 percent to less than 1 percent. And the second quintile went from nearly 14 percent to just 6 percent. In terms of raw percentages, then, the lowest quintiles got a much steeper cut.
Now, of course, the percentage rates don’t tell the whole story. A 3 percent cut for those making $148,100 yields more than a 6.5 percent cut for those making nothing. But in terms of sheer rate progressivity, the trends have actually been much more favorable to the lower quintiles than advertised. That’s doubly true for the Bush tax cuts, which virtually eliminated the federal tax burden for the lowest two quintiles.
Even moving to the second chart, we see a steeper decline for “all households” than we do for the 96-99 percentile group. And, shockingly, the top 1 percent actually saw a spike in their average tax rates the last year of the Bush administration. Even going from the Bush peak of 32.5 percent to the trough of 29.5 percent, it’s a relatively modest decline compared to the drop from 23 percent to 17.5 percent drop for “all households.”
Now, again, rates don’t tell the whole story. Because they make more money–radically more money in the cases of those in the 99th percentile and especially its upper reaches–the top earners got a much bigger windfall than those near the bottom in terms of actual dollars pocketed. Those near the bottom of the economic ladder never paid much in terms of federal income taxes; indeed, only the very highest earners paid income taxes at all in the early decades of the system. But it’s interesting, indeed, that in terms of rate progressivity–the notion that those with the ability to pay more should pay more–the Bush tax cuts met the goal that Democrats have espoused for decades.
UPDATE: See also Dave Schuler‘s posting on this from yesterday, in which he focuses on Chinn’s statement that “there is no obvious correlation between the tax rate applying to the top quintile and per capita GDP growth.”
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*I’m having to interpolate the exact numbers, since the Y-axis is shown in large increments.
