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Tax shares update




I've updated this chart to include data recently made available for 2009. The big-picture takeaway hasn't changed: the rich pay a hugely disproportionate share of federal income taxes. The top 1% of income earners paid almost 40% of all federal income taxes; the top 5% paid almost 60%; and the top 10% paid about 70%. The bottom 50% of income earners paid only 2.3% of all federal income taxes, and some 59 million tax filers either paid no income tax or received money on net from the IRS. This puts us perilously close to a "tyranny of the majority" in which there are more people receiving net benefits from the government than there are paying into the system.

One other important thing to note is that the share of total income taxes paid by the top 10% of income earners today has risen by 40% since the early 1980s, despite the fact that the top income tax rate has been cut in half. This is powerful evidence that the Laffer Curve is alive and well: cutting tax rates that are too high can and does yield a lot more in the way of revenue than a static analysis would suggest, because lower tax rates create bigger incentives to work and risk-taking, and they reduce the incentives to shelter, evade, or defer income, thus broadening the tax base. I also note that federal income taxes as a share of GDP were approximately the same in 2009 as they were in the early 1980s, thus proving that lower tax rates do not necessarily translate into reduced tax revenues.

Note: this chart does not include social security taxes, which are much more regressive, thanks to a cap on taxable income. But, given that social security taxes are supposed to be equivalent to a defined contribution plan (i.e., the benefits you receive are proportionate to the what you pay in), this is only fair. What you pay into social security is presumably your money, whereas what you pay in income taxes goes to fund the government.

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