TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Wednesday, April 27, 2005

More on Tax Progressivity (or Non-Progressivity)

Stuart Levine of Tax & Business Law Commentary takes me to task for my post yesterday about the Wall Street Journal editorial citing a recent study by Michael Strudler, Tom Petska & Ryan Petska purporting to show that:

the overall tax burden grew more progressive from 1979 to 1999. And while that burden became a tad less progressive after the Bush tax cuts of 2001 and 2003, the rich and upper middle class continued to pay far and away the bulk of U.S. taxes.

As Mr. Levine notes, the WSJ editorial tells only part of the story -- the WSJ ignores data from the study and elsewhere that the growth in the income received by the very wealthy far exceeded the growth in the taxes they bore during this period:

  • Between 1979 and 2002, the threshold for the top 0.1% grew from $321,679 for 1979 to $710,661 for 2002, an increase of 121%. Similarly, the threshold for taxpayers in the 1% group rose from $109,751 for 1979 to $175,618 for 2002, an increase of just over 60%. However, the thresholds for each lower percentile class show smaller increases in the period; the top 20% threshold increased only 5.6%, and the 40% and all lower thresholds declined. In other words, over the period studied, the rich got a whole lot richer than everyone else and began to put real distance between themselves and the middle class.
  • The share of income accounted for by the top 1% of the income distribution has climbed steadily from a low of 9.58% (3.28 for the top 0.1%) for 1979 to a high of 21.55% (10.49% for the top 0.1%) for 2000. To put it another way, the rich have become real hogs with respect to the portion of the total economic pie they consume.

Indeed, we previously blogged the recent article by Martin J. McMahon, Jr. (Florida), The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 993 (2004):

This article first examines in detail the increasing concentration of income and wealth in the top 1%, and particularly within much narrower cohorts near the top of the top 1%, that has occurred over the past twenty-five years. It demonstrates the strong Matthew effect in incomes in the United States over that period. The super-rich are pulling away from everyone by so much and at a rate so fast that the fact that incomes of many households at the bottom and in the middle have stagnated, or even fallen in constant dollars, has been obscured by ever increasing per capita income....Finally, the article suggests that its time for the tax system to address these problems by substantially increasing progressivity at the top of the income pyramid. Future tax legislation ought to mitigate the Matthew effect, rather than enhance it.

Among the many interesting tables in the articles is this (p.1013):

                            Average After-Tax Income (2000 Dollars)

Group

1979

2000

Percent Change

1st Quintile

$12,600

$13,700

8.7%

2d Quintile

$25,600

$29,000

13.3%

3d Quintile

$36,400

$41,900

15.1%

4th Quintile

$47,700

$59,200

24.1%

5th Quintile

$84,000

$141,000

68.3%

Top 10%

$106,300

$201,400

89.5%

Top 5%

$140,100

$299,400

113.7%

Top 1%

$286,300

$862,700

201.3%

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