Tax / Inequality Fact Sheet

One of the main issues facing us in this election is taxation — who pays how much, who should pay how much, and how is income distributed, and how should it be distributed.

Tax Rates

Single, Rich
Single $48K == 2012 Avg
Single with child, $25K
94.0% + Corp 25.0%
91.0% + Corp 30.0%
77.0% + Corp 27.0%
70.0% + Corp 34.0%
22.0% – EIC
28.0% + Corp 28.0%
15.0% – EIC
31.0% + Corp 28.0%
15.0% – EIC
39.6% + Corp 28.0%
 00.0% – EIC
35.0% + Corp 25.0%
10.0% – EIC
35.0% + Corp 25.0%
10.0% – EIC

Source Tax Foundation

The $48K value and the $25K value are in 2011 dollars.  Per captita GDP is about 350% of what it was in 1945, so at that time the $25K person was well above average — quite well off for the time.

1945: End of Depression / WWII
1960: Just before the JFK tax cut
1964: Just after the JFK tax cut
1980: Just before the Reagan tax cuts
1988: Just after the Reagan tax cuts
1991: Just after “read my lips” raised taxes
1993: Just after Clinton raised taxes (and eliminated them on the poor)
2003: Just after W’s tax cut (and increase on the poor)

“+ Corp” Most of the money the rich make is through ownership of investments, such as stocks.  The earnings of a company you own stock in is subject to the corporate tax, and that basically comes out of the pockets of the shareholders, in other words, the rich.  A large corporation is currently taxed at the highest individual tax rate.  So the present tax rate for the very rich is actually much higher than 35.0% (unless they can find some MAJOR deductions).  For historical corporate rates, see chart
“- EIC” The $25K person with a child was eligible for 2 deductions, or $7400 in 2012, a substantial fraction of their income.  These deductions are less significant for the other two people.  The $25K person is also eligible for the EIC “Earned Income Credit” (a ridiculous name — it’s a credit for not having earned much).  After the 2 deductions, at 10% tax, the poor person pays about 7% tax.  The EIC winds up being about 6.7% of their pretax income, so they really pay about 0.3% tax.The EIC was instituted in 1975 and gradually increased since then, so all the figures marked “- EIC” are in fact paying a lot less than that amount of tax.The two single people aren’t eligible for the EIC, which is mostly for poor people with kids — without kids, you really have to be starving to qualify for it.

Tea Party Myth: Tax rates on the rich are at an unprecedented level, and raising them any more will have catastrophic, hard to predict consequences.

Fact: Tax rates on the rich are at 37% of what they were at the end of WWII, and 45% of what they were in the late ’60’s.  We have had some major economic boom times under drastically higher tax rates on the rich.  Obama wants to raise the marginal tax rate on the rich, but only by 13% back to Clinton Era (boom time) levels.

Tax Burdens

Year % Paid by Top 1% % Paid by Top 10% % Paid by Bottom 50%
2000 37.4% 67.33% 3.91%
2002 33.71% 65.73% 3.50%
2007 40.42% 71.22% 2.89%
2009 36.73% 70.47% 2.25%

Source: National Taxpayers Union

OWS Myth: The rich are hardly paying any share of the taxes, the little guy is carrying most of the burden.

Fact: The rich are paying a large share of the taxes, the little guy is hardly paying anything.

Federal Budget in Inflation-Adjusted FYI 2005 Dollars

Year Federal Budget Federal Revenues Deficit
2000 2.04 Trillion 2.31 Trillion -270 Billion
2003 2.30 Trillion 1.90 Trillion 400 Billion
2007 2.56 Trillion 2.41 Trillion 150 Billion
2011 3.13 Trillion 2.00 Trillion 1.13 Trillion

Source Tax Policy Center

Myth: Tax cuts alone are why we have a deficit.

Fact: Spending is up 53% since 2000.  So we don’t just have a revenue problem, there is also a spending problem.  Also, revenues had more than recovered from W’s tax cuts by 2007.  The recession clobbered revenues.

Spending Growth in Inflation-Adjusted FYI 2005 Dollars

Year Social Security Medicare Defense
2000 462 Billion 222 Billion 332 Billion
2003 497 Billion 261 Billion 425 Billion
2007 552 Billion 353 Billion 519 Billion
2011 632 Billion 420 Billion 610 Billion


Inflation Data:

Myth: Defense costs have reduced since we got out of Iraq.

Fact: Defense spending has continued to rise, up 258 billion FYI 2005 dollars since 2000, Medicare and Social Security put together are up 170 + 198 = 368 billion dollars.  Defense spending is up 84% since peacetime, Social security is up 37%, and Medicare is up 89%.

Historic After-Tax Household Income Distribution, FYI 2005 Dollars

Year 0-20% 20-40% 40-60% 60-80% 80-100% 90-100% 95-100% 99-100%
1979 14K 29K 42K 54K 96K 121K 158 326K
1990 14K 29K 42K 58K 119K 160K 223K 552K
2000 16K 33K 48K 67K 160K 228K 340K 978K
2005 15K 34K 50K 70K 172K 246K 370K 1072K

Source: Crouch?

Historic Per-Captita GDP in FYI 2005 Dollars

Year Per Capita GDP % Increase
Since 1979
1979 25K 0%
1990 32K 28%
2000 37K 48%
2005 43K 72%

Note the numbers are lower than the chart before it because ‘Per Captita’ is per individual, including dependents, while the above chart is ‘Per Household’, which often includes two incomes.

Source: Visualizing Economics

Historic % After-Tax
Household Income Change Since 1979 (FYI 2005 Dollars)

Year 0-20% 20-40% 40-60% 60-80% 80-100% 90-100% 95-100% 99-100%
1979 0% 0% 0% 0% 0% 0% 0% 0%
1990 0% 0% 0% 7% 24% 32% 41% 69%
2000 14% 14% 14% 24% 67% 88% 115% 200%
2005 7% 17% 19% 29% 79% 103% 134% 228%

Source: Derived from the ‘Crouch’ data in the table two tables before this one.

Distribution of Net Worth (Inluding Homes) 2007

Percentile of Wealth 0-80% 80-90% 90-95% 95-99% 99-100%
% of Total 15% 12% 11% 27% 35%
Average Wealth Relative to Average 18.75% 120% 220% 675% 3500%

Source: University of California at Santa Cruz

I remember back in the ’60’s / ’70’s, liberals used to go on and on about poverty.  Now they mostly talk about inequality.  This is because poverty hasn’t gotten any worse (nor has it gotten better), but inequality has grown.

Unlike most liberals, I do not lie awake at night dreading the possibility that anybody else may be better off than me.  I do not see wealth or inequality as problems. I do worry about the people who are worse off.

We should not expect increases in per capita GDP to be distributed equally throughout the population.  That is not how the marketplace works.  The spoils go to those who have contributed to the increase, which means those with skills.

That said, I am surprised the people in the 60-80% range, who must include a lot of fairly skilled people, aren’t seeing a larger share of the gain from increasing productivity.


  1. Duke Briscoe says:

    Your “Tax Burdens” section, from the National Taxpayers Union, is only federal income taxes – leaving out payroll taxes, sales taxes, gas taxes, property taxes, any other local and state taxes and fees. I’m not disputing that lower income people are not paying as much taxes, just clarifying the data source. Also, remember that the minimum wage has not been keeping up with inflation. The Earned Income Tax credit is a subsidy that supports low income employment. Just like low income employees getting food stamps or other benefits – subsidizing employment for some industries.

  2. xyquarx says:

    Hi Duke, I think the fact that minimum wage has not kept up with inflation is reflected in the charts of relative pay, for the bottom quintile. It’s pretty novel to claim the EIC is a “subsidy of low income employment”. How do you differentiate between such a subsidy and actually giving low income people money? One could similarly claim that the Bush reduction in tax rates for the rich was really a “subsidy of entrepreneurship”.

  3. pofect nerbody says:

    Should we assume that the rich are necessarily entrepreneurs?

  4. xyquarx says:

    Pofect Nerbody: That’s not very relveant. For that matter, should we assume that the recipients of the EIC are necessarily employees? They might be living on investment income.

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