Ask Auntie Pinko
July 15, 2005
By Auntie Pinko
I was having a debate at work recently with a right-wing colleague
and he asked me to answer the following question.
He stated: five percent of Americans pay 54 percent of all
personal income taxes. They do not use more government services
than other Americans; they use fewer. Why is this fair?
How can I rebut this? Is it true and factual? If it is, does
he have a point? What can I say? HELP! I need some talking points.
Thank you and keep up the good work.
Palm Beach Gardens, FL
Auntie Pinko is sorry to tell you that I can't help you, because
I don't "do" talking points. Talking points are rhetorical weapons
in the propagandist's arsenal; like statistics, they can be factual
and yet say whatever the user wants them to say. By selectively
using information, presenting incomplete or irrelevant data, or
focusing on marginal issues of high emotional impact rather than
central issues of less "punch," talking points can be used to manipulate
debate into dead ends and abstract backwaters that do nothing to
enlighten or evoke thought.
However, I am happy to discuss the specific item you've raised,
in the larger context of national tax and finance policy, which
is where it belongs.
Let's start with national revenues: the money America needs to
pay for all the things we expect of our government. Where do they
come from? In 1934 (the first year we collected information like
this) Federal revenues broke down like this:
- 45.8% of all Federal revenue came from excise taxes
- 26.7% came from a stew of "other" sources that included certain
fees and licenses, as well as taxes on wealth or assets (inheritance,
gift, and capital gains taxes, etc.) as opposed to income
- 1% came from social insurance and retirement payments (not
surprising, since Social Security hadn't gotten rolling yet)
- 12.3% came from taxes on corporate revenues, and
- 14.2% came from individual income taxes.
Fast forward to 1946:
- 17.8% of the total Federal revenues came from excise taxes.
- 3.1 % come from "Other" revenues
- 7.9% of the revenues are now receipts on social insurance and
retirement payments, but of that only 4.8% goes back out in payments,
and 3.2% is held "off-budget" (that is, it cannot be spent.)
- 30.2% of Federal revenues are taxes on corporate revenues;
- 41% is collected in individual income taxes
In 1946, Americans in the top tax bracket faced a marginal income
tax rate of 86.45%. That was low, compared to the top marginal rates
in the 1950s, when the top marginal rates reached 92%. Were those
the "good old days" conservatives long for? Those top rates stayed
in the 90% range until the mid-1960s, when they came down to the
70% range, where they stayed until Mr. Reagan was elected. In 1982,
they dropped to 50%.
Let's check the Federal revenue distribution in 1986, just before
the tax reforms enacted that year took effect:
- 4.3% of all Federal revenues are excise taxes
- 5.2% is now from "other" receipts
- 36.9% from Social insurance and retirement fund payments, but
only 10.9% is available for paying out in the budget, the other
26% is off-budget
- 8.2% are now taxes on corporate revenue taxes are now 8.2%,
- 45.4% is collected in individual income taxes
How do the "top five" percent of Americans make out in 1986? Well,
aside from that top marginal rate of 50%, they're paying an average
tax rate of 25.68%. The "top five" makes 24% of all the income made
by Americans, and they pay about 43% of all income taxes collected
Descending from these rarefied heights, let's look at the bottom
fifty percent of Americans. That year, their tax rate was between
9.6% and 16.35%, and they made almost 17% of all the income made
No, that's not a typo. Half of all the people who filed income
taxes in 1986 accounted for less than a fifth of all the money made
that year. Of all the income taxes collected that year, they paid
less than 6.5%. Of course, considering that the income of the bottom
half, averaged from their tax returns, comes out at $8,239 per tax
filer, it might be quite a stretch to make that percentage more
Now let's look at today. The Federal revenue distribution looks
much the same. Corporate revenue taxes, excise taxes, and "other"
revenue are down very slightly, and social insurance and individual
income taxes are up very slightly, but the amounts are comparatively
But those unfortunate "top five" are getting hosed! Or are they?
Certainly, they're paying fifty-four percent of all the individual
income taxes collected this year. But their average tax rate is
now down to 22.9%, and the top marginal rate is now 38.6% (and due
to drop next year to 35%.) And the "top five" are now making more
than thirty percent of all the income earned by all Americans.
How about the bottom half? They must be making off like bandits!
Their tax rate is now between 4.6% and 14.6%, and they made less
than 15% of all the income made by Americans. They paid only 3.5%
of all income taxes paid by Americans, so it would only be fair
to make the bottom half pay a little more, right?
Except that in constant dollars (adjusted for the Consumer Price
Index,) the average income per filed return of the bottom half of
Americans is around $10,000 a year (that's $13,555 in current dollars.)
So it might (again) be difficult to squeeze in more tax payments
among the housing, health care, day care, and other items eating
into those budgets. Your conservative colleague can try to make
things "fairer" this way, of course, but there is the old saying
about blood and stones to consider.
Oh, wait. Auntie forgot. There was another assertion as part of
your colleague's talking point about the poor, much-abused top five.
They "use fewer government services" than other Americans.
Last time I looked, Federal subsidies to homeowners benefited
the "top five" way more than the bottom half. Ditto federal subsidies
on wealth (capital gains tax deferrals, breaks, etc.), life insurance
savings, certain types of bond income, accelerated depreciation
on various types of property, fringe benefits, meal and entertainment
Not to mention tax-free retirement subsidies (Social Security,
Medicare, etc.) which accrue equally on a capitated basis to the
"top five" as well as the bottom half, and which account for one
of the largest items of Federal spending.
What about other "services" the "top five" don't use? Well, they
have more to lose than the bottom half, so perhaps the amount they
are paying for military protection, security, the maintenance of
the legal system, etc., should indeed be proportionate to what is
Oh, that's right. They don't get food stamps. Considering that
the overwhelming majority of food stamps recipients are children,
disabled, or the elderly poor, and very few of them tend to be in
the "top five," in that particular case your colleague is right
So, is our national tax and finance policy "fair?" Not according
to anyone Auntie Pinko has asked on the left or the right. It doesn't
seem to work for anyone, does it?
Thinking about that brings me back to why I included all of that
apparently irrelevant data from way back when - the 1930s, 60s,
etc. You might have noticed a couple of significant changes in that
"overall profile" of Federal revenues. Did you? What was much higher
back then? Gold stars to those who noticed the precipitous decline
in taxation of corporate revenues and wealth/assets. In fact, a
good case can be made (though not here, because Auntie's fingers
are getting tired) that if you factor in the incredible decrease
in corporate taxes with the enormous increase in corporate welfare
and subsidies, you can account for the Federal deficit.
I realize this is all messy and complicated, Michael, but the
question of how the government collects the money needed to deliver
on its citizens' needs and expectations is enormously complicated.
It doesn't reduce to talking points. And, in the words of the Dread
Pirate Westley (Princess Bride is one of Auntie's all-time
favorite films) "anyone who tells you otherwise is selling something."
And it's probably something you don't want to buy. But thanks for
asking Auntie Pinko!
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