We talk about tax brackets for income taxes ranging from 10% to 35%, but when all payments to the government are taken into account, we pay significantly more. Research by Laurence J. Kotlikoff and David Rapson in a paper called Does it Pay, at the Margin, to Work and Save [PDF] shows that most people pay about 40% of their income to the government, all things considered.
Here’s an interesting chart from the report. You can click on the report to zoom in.
This is just one example. It shows how a 30-year old single earning anywhere from $25,000 to $250,000 per year pays almost the same 40%. The small dip is due to the earned income tax credit, a credit given to low income earners with qualifying children. Charts for other ages are similar.
I’m surprised at how straight this line is. It seems to be possible that the graduated income tax marginal rates are designed to keep most people paying a total of 40%. For some more thoughts on this report, see Scott Burns’ article.
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{ 4 comments… read them below or add one }
This is really no surprise. Only the “earned income” portion of our tax code is progressive. The other portions are either flat or regressive. I have long believed that, when taken as a whole, Federal taxes are regressive.
Here’s a link to a NY Times article about Warren Buffet (written by Ben Stein). He talks about an impromptu study he did in his office in which he discovered that his overall tax rate is FAR lower than that of his office staff.
link
Nice article, Bill. Thanks for sharing.
Taxes are no doubt regressive. Richer people get the benefits of being capped on FICA and also on having their capital gains taxes limited. The poor and middle class who don’t have the benefit of the EIC get absolutely nailed. Even people with “no tax liability” are still paying 7.65% plus whatever their state liability is, plus real estate tax, plus personal property tax, plus sales and excise tax. It’s a whole lot of taxing going on.
To be accurate, the study is talking about flat MARGINAL tax rate! It makes a bit difference.