Thursday, April 14, 2011

The Poor Pay The Highest Percentage of State Taxes

Following up on my earlier post about what the rich pay in taxes, Vinny made the point that at the state level things get even worse. The poor pay a higher proportion of their income in every state except Vermont. It sounds shocking but it's true.

I learned this via an interesting article called 9 Things the Rich Don't Want You To Know About Taxes. It's worth a read.


HispanicPundit said...

I dont know why its so shocking. It makes sense from a "maximizing tax revenue" point of view.

It's alot harder for rich people to leave the country than it is for them to leave the state. Not just place of residence but business location (especially the higher up the income ladder you go). At the state level, such decisions and locations are very dynamic and can easily (or atleast, significantly easier than at the federal level).

So you would expect federal taxes to be able to be progressive, while state taxes not so.

Darf Ferrara said...

Also richer people would tend to have more disposable income that they could save instead of spend. Money that isn't spent isn't taxed. Why this should sound shocking is not clear to me.

HispanicPundit said...

Btw, I am a bit heart broken that you gave Vinny the credit when I made the same argument alot earlier. See my first comment here.

I wrote:

State taxes tend to be regressive - its alot easier for the super wealthy to leave a state than it is for them to leave a country. So too high of a tax on the wealthy, and they just leave.

But no credit whatsoever.

Another example of Jon's selective reading (tends to glance over views he disagrees with, and read more those he agrees?) or merely liberal bias? :-)

Jon said...

Shocking is maybe not the right word. Surprising. I find myself surprised by unexpected injustice I guess, especially in light of all the wining from right wingers about the over burdensome taxation the rich endure. See for instance my post regarding Mike Church.

There's a real perception amongst the tea party crowd that the rich pay more proportionate to their income. Not just more. Substantially more. I assumed they paid more. It doesn't seem that they do.

Jon said...

HP I think your point also illustrates why we see the tea party emphasis on states rights. States are easily overpowered by corporations.

Sorry for not giving you more credit. I think I remembered Vinny because in that thread the point was more germane. Here's a pat on the back for you.

HispanicPundit said...

Thanks! Thats all I ask. Some credit every now and then. :-)

The rich do pay more in taxes though on net and at the federal level, see here.

Here are two facts that also may "surprise" you (want to throw them out before someone else says something and gets the credit):

1. Did you know that Europeans have a REGRESSIVE tax structure (meaning, the poor pay MORE in taxes!)? The VAT, for example, has always been regressive while the federal income tax is progressive.

So while Europeans give more to the poor in one hand, in terms of safety nets and welfare, in the other hand they take more from the poor in terms of taxes.

Keep that in mind when criticizing the United States. We may provide less government services to the poor (safety nets, welfare, etc) than Europeans do, but we also tax them less. It's an empirical question which method is better off, on NET for the poor.

2. Did you know that Europeans and the United States both collect about the same tax revenue from their citizens? Sure, the Europeans have higher taxes...but they have less rich people. The United States lower taxes, but more rich people. ON Net, its about the same tax revenue (normalized per median taxpayer). This had lead some to postulate that there is a 'tax equilibrium' that we have reached, where you cant get more tax revenue without doing serious harm in other areas or some other country undercutting you.

I didnt post links because then I would surely be flagged for spam (the primary reason I try to stay away from links on this site) but its all easily googleable stuff.

Jon said...

Sorry, my Google skills don't seem to be working. EU taxes are regressive? I'm not finding that. I'm finding that the VAT is regressive, but that's not the only EU tax. I found an article that makes the unsourced claim that the US is the least progressive in the industrialized world and concedes that yes, the VAT is regressive, but EU is still more progressive than the US. Do you have a source for your claim that EU taxes are regressive?

Darf Ferrara said...

The thing I find odd is that you claim that there is some injustice being done at all. Why should percentage of income be related to justice in the slightest? The rich are certainly paying more on average than the poor, and they use the same roads, collect the same social security benefits, and pay for the same wars that the poor do. Do you simply believe in the Marxian doctrine of 'to each according to his needs, and from each according to abilities' as a moral doctrine? And do you think that the idea of private property is not valid?

As a matter of economic efficiency, the ideal tax would be a head tax, or something similar that doesn't distort incentives. That is a first approximation to a "maximum pie expanding" tax, and it is much more regressive than any tax that is now discussed.

HispanicPundit said...

The europeans get the majority of their tax revenue via a VAT. The VAT is regressive. Were the only industrialized country that doesn't have one. That's pretty much all you need to know.

But there is more. There are sin taxes, of which Europe does more of. Also gas taxes, and in general environmental regulations...all taxes that harm the poor far more than the rich ($1 more per gallon hurts the poor guy more than the rich guy). etc. Than payroll taxes are also higher in Europe - again, regressive. etc

See more here.

HispanicPundit said...

Yes, Jon, I am curious what you would answer to Darf's point. If, for example, everybody paid 20% of their income, rich or poor, that would lead to the rich already paying more in absolute dollars. Why should they pay more than that? How does "fair" play into that?

Jon said...

No, HP. Pointing to one or two particular regressive taxes in Europe does not tell is if in fact Europe's tax system is IN TOTAL regressive. Either do the work and show it or withdraw the claim.

Value judgments are not like mathematical axioms. Sometimes they conflict. So I'm not necessarily saying that it's obvious I'm right. But I think that taking a higher proportion of money from those that have less in order to support projects that are in the public interest is just wrong. I judge that taking $1 from someone that makes $10,000 hurts more than taking $10 from someone that makes $100,000. Granted this assessment is subjective, but that's my belief. For me regressive taxes violate this economic moral philosophy offered by Krugman, and he's describing a moral philosophy I agree with. Not exactly Marxism, but yes "need" is a factor.

And it's not clear to me that the rich and poor both collect similar amounts of benefits. Wall St is the obvious example. But there's a lot more. Take engineering. Without the defense sector the salary of an engineer would be a lot lower because of the boost in demand for engineers provided by the government. That's a lot of compensation that a typical Wal-Mart greeter isn't going to enjoy. They also don't benefit as much from the technological advances. Engineers rely on high tech developments. They make us more productive and generally boost our demand. Those are developments that the Wal-Mart greeter benefits from as well, but not like us.

The wars are certainly not about our security. I think the three of us recognize that. So there's almost no benefit in our invasion of Iraq for the poor. But it's huge for the defense sector/engineering. Are the poor taking a lot of plane rides? A lot of people can't afford $80/month for high speed internet in the home. I can. You can. We benefit from that government research more than the poor.

Paul said...

And do you think that the idea of private property is not valid?

Yes as a means to desired end.

Paul said...

Probably should have been clearer in my last post -

Yes I think private property is valid but primarily because it is a means to an end.

HispanicPundit said...

I gave you the majority of their tax system - VAT, sin taxes, payroll taxes and even environmental taxes. These are regressive taxes. Even you admitted that they are regressive taxes (in previous posts...I can dig em up if you like). I even gave you a link (from the economist magazine, no less). What more can I do?

Here is Greg Mankiw (a center-right economist), economics professor at Harvard University, basically saying the same thing. Here is Paul Krugman(center-left) acknowledging and even advocating for more of it. What more do you want? This is basic stuff man. It gets irritating having to hold your hand through this...if your threshold of truth is that you want Chomsky to admit it, then I am sorry. That wont happen. But thats more a limitation on your threshold than on the facts themselves.

Jon said...

I know for right wingers asking for evidence for their various assertions is a lot to ask, but I've learned that it's important. They are so often wrong it's worth asking them to look it up.

No details in your sources unfortunately. A break down would be nice. I'm not saying you're wrong. I'd just like to see.

HispanicPundit said...

I'm not disputing that sources should be given...I am asking for what would count as a definitive source? Did you see the Paul Krugman link? What does he seem to be saying to you?

A little help here would be appreciated. Certainly more than "nah, dont like it...more please".

HispanicPundit said...

Here is Krugman on the VAT:

More generally, it does seem that countries with strong welfare states have less progressive tax systems than those with weak safety nets; see this, from the Luxembourg Income Study (pdf).

This is the same economist that you link to approvingly only one comment above. Yet he still doesnt meet your standard of proof??? I give up.

Paul said...

HP - I haven't reread the entire thread. It isn't very long but I am not too inclined. But going from memory the issue of contention is not whether VAT is regressive or not. I don't think Jon is disputing that. Though it seems to be your focus. Rather I think he is making the claim that (again going from memory, haven't reread...etc) even when accounting for VAT that the overall European tax structure is more progressive than the American one.

Jon, HP - I hope I haven't misrepresented you. But it seems to me one is talking apples and the other oranges... Or maybe I should reread the whole thing.

HispanicPundit said...

Yep - and Jon has agreed that the VAT is regressive.

But my point is stronger than that: My point is that if you look at the total tax revenue European countries receive vs USA countries, the Europeans would seem regressive, or atleast less progressive, than our method.

In other words, the poor pay a far higher share of their income in total taxes (VAT, income tax, sin taxes, gas taxes, payroll taxes, etc) than they do in the United States.

The European tax system, as a whole, is 'regressive' (or atleast less progressive) vs the United States. That's my argument.

Do me a favor Paul: Just read the Paul Krugman post I linked to in my previous comment. His comment regarding their tax system was a general comment, not just the VAT (sales tax), but a general comment regarding the "tax systems" as a whole, and he specifically said my point: their system is less progressive. He even cites it approvingly!

He provided a graph. A link to a study that goes into this more. He is also the same economist that Jon linked to just a couple comments before - approvingly, one who supposed shares the same political philosophy as Jon. Yet Jon doesn't consider that proof...and "wants more".

At some point you gotta just throw your hands up and write it off as convenient stubbornness to continue holding the views he prefers. No?

Jon said...

I nowhere argued that European taxes are more progressive or less progressive than US taxes. I'm here to show that taxes in the US aren't as progressive as is often claimed.

HP, you keep talking about throwing up your hands as if I've been arguing that EU taxes in fact are more progressive and I won't face facts. In reality what I did is merely ask for evidence of the assertion. I failed to follow up on the Krugman source. I saw that he asserted that EU taxes were more regressive and was too quick in my reply, and I said that it would be nice to see the data. Again, that's not to say he's wrong. So I'll have to concede an oversight on that one. But you're arguing against me like I said EU taxes are more progressive and I didn't. I can accept that EU taxes are more regressive, but you are right also to say that their expenditures are genuinely progressive (that is they largely benefit the poor).

EU is not perfect. I'm not saying they are.

HispanicPundit said...

Wish you would have said that a few comments before, would have saved us both alot of time. :-)

Equus said...

Almost half of California's income taxes come from the top 1% of earners. In New York, the percentage is now 41%, up from 25% in 1994. In Connecticut and New Jersey, the top 1% pay more than 40%.

Here is proof you are wrong

Read more:

Equus said...

Almost half of California's income taxes come from the top 1% of earners. In New York, the percentage is now 41%, up from 25% in 1994. In Connecticut and New Jersey, the top 1% pay more than 40%.

Read more:

Jon said...

Equus, what you've offered is more of the same shell game. The richest pay more than half of the "income" taxes. What about all taxes, not just income taxes? See, the rich always want to crow about income taxes, not sales taxes or property taxes, which are more regressive. They only want to talk about the one that highlights their suffering.

Go to the source I offered. They pay the highest % on income taxes. What about property and sales? They pay the lowest. What is the net effect? They pay the lowest. The bottom 20% pay the highest as a % of their income. So there's nothing wrong about what I said. What I've said is 100% accurate.