Matt_W
1824
Narrator: it doesn’t
It seems probable to me that both statements are true. The US has one of the most progressive tax systems, and the US has one of the least generous safety nets. Most OECD countries get a large.portion of their revenue via sales tax (GET) which even with exemptions for food and such is highly regressive. A family of four in the US, making the median income pays almost no federal income tax, they only pay payroll taxes, local state sales and incomes taxes*, and property tax if they own a home. In the rest of the OECD, the median family pay plenty of taxes, income, GET, provincial taxes, and hell even a TV tax in the UK. This makes the tax burden on median family higher than the US. Many of the marginal rates for the taxes disappear for the wealthy in the same way that payroll taxes disappear for high earners.
On the other hand, there is no denying that government in other OECD countries provide more generous benefits, in particular, health care.
*Not all states have both.
Neither Gates, nor Bezos have/were ever well compensated, nor Warren Buffett for that matter. Bezo’s salary was 81K in 2017, Buffett is 100K, I believe Gates had similar salary back in the day… Virtually all their wealth companies from their owning founding shares in their respective companies and seeing the value of those shares skyrocket.
I could be wrong but I don’t believe any of them every even got stock options.
Edit: Their salaries and of other founders helps make the correlation between high CEO pay and shareholder returns look really bad.
Timex
1827
Yeah, i don’t believe Bezos collects a giant salary.
You and I both know that isn’t true.
This is sophistry, because the ‘good CEO’ ‘grew the company’ and kept all the gain from growth for himself and his executive team. That is what the wage data show. As long as you’re pretending something else, you’re engaging in some kind of subterfuge, and people will keep calling it out.
(Never mind that it is employee productivity that grew the company.)
Matt_W
1830
The measure that the chart in question is using to quantify this is “proportion of total income and payroll tax revenue paid by the richest decile.” But this narrowly defined measure isn’t necessarily a useful one to define progressivity. Say you have a village with 100 people where 99 of them make $100/yr and one makes $1,000,000/yr. A flat tax of 10% across the board would produce a total of $990 from the 99% and $100,000 from the 1%, so highly progressive, right? 99% of tax revenue comes from the top 1%. But a flat tax rate is generally not what people are thinking of when they say “progressive tax structure.”
A more obvious measure would be “average proportion of total income paid in taxes by the richest decile, relative to the other deciles.” I suspect the United States would not stand out on that measure.
This undermines your entire thesis. You’re saying that while executive pay has grown dramatically, pay for other positions, e.g. entry-level ones, has not. So it is not true that the CEO grows the company then pays the employees more, is it?
This is an outrageous claim. Citation, please?
Matt your definition of progressive is pretty extreme. The OECD chart, Andy posted shows the percentage of income tax by the top 10% and the US at the top… I think your example shows your bias. Hey it doesn’t matter that one guy pay 98% of the total taxes of the village he only pays 10% of his income tax, that’s not progressive enough. How much should the one guy pay to be “fair” 50% his income? Maybe the real problem isn’t the one guy making a million isn’t paying enough taxes, it’s that the other folks are only making $100/year.
I’ve spent enough time studying taxes to know that what really matters in measuring tax rates progressiveness isn’t the top marginal rate, but the effectiveness of funding a government by taxing rich people and not taxing poor people.
That article compares company performance to CEO salary, and shows that sometimes the highest-performing companies have middle-of-the-pack CEOs, and sometimes mid-performing companies have higher-paid CEOs. That doesn’t change the fact that a highly-paid CEO has a huge influence on the fortunes of a company, and often benefits employees many times more than just redistributing his salary among the employees (which, again, is not how salaries work).
Take Bob Iger for an example, because there has been a lot of press lately about his $65 million salary (1400 times the median salary of a Disney employee). A lot of people are complaining that Bob Iger’s salary is unfair when other employees make so little. But what did he do while at Disney?
Iger over the purchase of Pixar, Marvel, Lucasfilm, and 20th Century Fox, employing countless people and providing jobs and pay for hundreds of thousands of workers. Disney added over 70,000 more jobs during his tenure as CEO. Even if all of those jobs were minimum-wage jobs paying $7.25 an hour, that is $1 BILLION being paid to new employees. And Iger also approved a minimum wage increase to $15 an hour for all Disneyland employees. All of these decisions have made Disney enormously successful, allowing them to hire more and more people for more and more jobs, generating tremendous value for the company.
By comparison, if you divided Iger’s salary among all of his employees, it would amount to a pay increase of 15 cents per hour.
So would it be better for employees to have an extra 15 cents per hour, or have someone who creates new jobs and new opportunities that expands the company and employs hundreds of thousands of people?
People really do need to read Piketty before diving into this argument.
The thing about capitalism and markets is that they shift wealth to the top. They always do that, it is inherent in the system. The return on capital over the long run is always higher than the growth rate.
There are only two ways to combat that. They are 1) tax the money at sufficiently high rates to shift wealth from the wealthy to the not-wealthy, or 2) kill the wealthy and / or take or destroy their wealth. 2 is rather more messy, so I prefer 1.
The measure of whether taxes are progressive or not is to look at the resulting wealth and income inequality. In the US, it is high, extremely high, much higher than in our own history and much higher than virtually all of the other OECD countries. So, our tax system is not working like a progressive system nearly as well as theirs are.
Matt_W
1836
I’m pretty sure if you asked 100 economists what “progressive income tax structure” means, 100 of them would say “the more income you make, the larger share of it you pay in taxes.” That’s the common-usage definition of it. It’s not extreme at all; it’s what people mean when they say “progressive taxation.”
Yes, that is, exactly, the problem. The measure of “progressiveness” described in the chart can easily measure income inequality and not progressiveness.
The U.S. government isn’t funded by taxation; it’s funded by appropriations bills. We have separate accounting that says tax revenue-appropriations shortfalls must be matched by bond sales. But when government has been shut down in recent years, it’s because Congress has refused to issue appropriations legislation, not because they’ve refused to tax.
But I’m not sure I agree with what you’re saying regardless. The progressiveness of a tax structure depends on tax rates, not revenue. You can design a progressive tax structure without knowing anything about the income distribution of your tax payers.
No, that is definitely NOT a progressive tax rate. It is a flat tax, as you stated. A progressive tax system takes a larger percentage from high-income earners than it does from low-income individuals. Your stated example is specifically not that, and is therefore not progressive.
Right, because a flat tax rate is not a progressive tax structure.
Yes, that’s a better measure of tax progressivity. And sorry, but the United States does stand out on that measure.
For 2014:
The top 1% made 20.58% of income, and paid 39.48% of income taxes.
The top 5% made 35.95% of income, and paid 59.97% of income taxes.
The top 10% made 47.21% of income, and paid 70.88% of income taxes.
…and on down the line.
Or here’s a report from Bloomberg with 2016 data:
https://www.bloomberg.com/news/articles/2018-10-14/top-3-of-u-s-taxpayers-paid-majority-of-income-taxes-in-2016
According to that report, the bottom 50% wage earners made 11.6% of total U.S. income, but paid 3% of all taxes. And if you look at the chart in the middle (Progressive Paying), the top 50% all pay a higher percentage in taxes than what they make in income, all the way down to the top 1% making 19.7% of all income and paying 37.3% of all taxes.
But since you specifically asked about the richest decile, the top 10% made 46.6% of all income, and paid 69.5% of all income taxes.
What percentage of their own income did they pay in taxes? Cuz it looks like it is…21%. That’s…not progressive.
Matt_W
1839
Other possible questions:
- Would Bob Iger have done a worse job if he’d been paid less?
- Is there anyone else who could do what he’s done for, perhaps, 1/4 of his salary?
- How much of Bob Iger’s accomplishments are due to people who work for him and how much due to him personally?
Matt_W
1840
These aren’t average tax rate numbers. They’re percentage of total tax revenue, which you just said is not a good measure of progressivity. With a flat tax rate of, say, 10%, the average tax rate for every decile will be 10% even if the top 10% pay 90% of the taxes; they still pay an average of 10% of their own income in taxes.
Also, there’s no comparison to other countries’ tax systems here. The claim is that the U.S. has a uniquely progressive tax system.
Of course, as people have said above, that report only looks at the federal individual income tax, and not other types of taxes, (most notably capital gains and social security/Medicare on a Federal level).
If I inherit a bunch of money, I can live off that and never pay income tax, assuming I’ve correctly structured my finances.
KevinC
1842
This thread is like something out of a time capsule. Conservatives and others arguing about tax policy instead of children in cages? What is this, 1998?
That’s not my point. If you are claiming that a tax system where top 1% pay 98% of the total taxes isn’t progressive, than that’s extreme. We could argue forever on marginal tax rates, they are only one tiny piece of tax policy. I’ve seen top marginal tax rates in my lifetime from 28%-91%, and yet the average effective tax rate for the top 1% has remained in very narrow band of ~25-35% during that whole period.
I could design a tax system with a top marginal rate of 91% that would be less progressive than Reagan’s 86 tax cut where the top bracket was 28%.
The measure of tax system progressiveness shouldn’t be how it looks on paper, but how effective it is in practice.
