Monday, August 19, 2013

Tax wars (Episode I, the Payroll Menace)

A long time ago in a galaxy far, far away... Oh well, in the US in the last 80 years or so the structure of taxes changed quite a bit. The figure below shows the share of individual and corporate income taxes, excise and payroll taxes since 1934 to 2013 (last year is an estimate; source here).
Excise taxes fall from high levels to relatively low levels, making the whole tax structure more progressive. On the other hand, corporate income tax revenues fell from the 40% peak of the WW-II period, to around 10% [but remained above 20% until the 1970s, one should note] making it less progressive. Also, changes in the marginal tax rates in the individual income tax, particularly after the 1980s, made the system more regressive.

Note, however, that the largest increase as a source of revenue is the payroll tax. This suggests that increasingly the social safety net is paid by workers. That, of course, will not stop the conservative political forces to continue to try to privatize social security and eliminate other programs associated with the safety net.

2 comments:

  1. Just an interesting note: If you compare the payroll tax share with the employment-to-population ratio you 'll observe that the large increase in the former happened during a period when the latter did not change significantly. One would expect to see a different pattern.

    http://research.stlouisfed.org/fred2/series/EMRATIO

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  2. This misses out on state and local taxes, which rely mostly on regressive sales taxes and regressive (!) property taxes that hit the poor and middle disproportionately. Whereas the bottom 20% pay around 11% of their income to state and local taxes, the top 1% only pay about 5.6% of their income to state and local taxes. At the Federal level, the bottom 20% pays 5% of their income to Federal taxes (mostly because they don't make enough to receive income tax and they get the EITC) but the top 1% pays 21% to the Feds.

    Compared to state and local taxes, the Federal system is relatively progressive!

    See: http://www.itep.org/pdf/whopaysreport.pdf for a state-by-state breakdown.

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