Wednesday, October 19, 2016

How much good would Hilary's Tax the Rich Program Do?

According to the Congressional Budget Office:
Before-tax income was unevenly distributed across households in 2011. Average before-tax income among households in the lowest one-fifth (or quintile) of the distribution of before-tax income was approximately $25,000 in 2011, CBO estimates (see table below). Among households in the middle income quintile, average before-tax income was about $66,000. Relative to those two income groups, households in the highest income quintile had average before-tax income that was much higher—approximately $246,000.

Households in the middle quintile paid about $7,000 in federal taxes, and households in the highest quintile paid about $58,000 in federal taxes, which results in average federal tax rates of approximately 11 percent and 23 percent, respectively.
This Congressional Research Service report says:
The first key point of the report is that, although there are a variety of ways to describe the income distribution, all show that income is concentrated among high-income households. Of the 122,459,000 households with income in 2012, 2.3% had incomes of at least $250,000. (The Census Bureau does not disaggregate income within the $250,000-or-more income class.) 
 My analysis:

While the top quintile of income is not an exact match with those >$250,000/year it is pretty close.   This category is 2.3% of 122,459,000 households=2,816,557 households.  Right now, those evil rich people pay at least $161 billion in federal income tax.  (Probably more because not every such household is making $250,000; some are doing much better.)  At a 100% tax rate, they would pay $704 billion-$161 billion=542 billion.  This is a very large difference, but smaller than our $587 billion deficit.

Of course many of these families are the millionaire Democrats that are funding Clinton, so it's fair to assume that they will get tax loopholes to protect them from higher tax brackets.  There is no way that they will pay 100% in federal income tax.

Remember also that federal income tax is voluntary once you have $5 million.  Buy municipal bonds of your state, and interest is exempt from federal and state income taxes.  At 4% yield,, that is $200,000 per year.  You can't pay for a private jet but is hard to be miserable on $16,666 per month in income.

2 comments:

  1. This is all, as per usual, a political red herring anyway. Annual budget deficits are not the glaring problem with the overall debt; it's the unfunded non-discretionary liabilities that will implode the economy, and no one is gutsy enough to be honest about Social Security or, worse, Medicare.

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  2. Buying tax-exempt bonds carries other penalties and risks, comparable to the tax burden. (The market sees to that.) And of course, one cannot protect income from sources other than return on invested capital.

    One could forego all such income by not working, but that's another choice. (Though one a lot of high earners would take, if income taxes ever approach 100% again.)

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