Yesterday's newspaper had an op-ed by Gary Locke and Sue Donaldson with an astonishing mistake.
Low-wage workers pay a disproportionate share of their incomes to taxes. Even if they don't pay any federal income taxes, they pay sales taxes and other consumption taxes such as the gas tax.
Consider that a family balancing its budget on $17,000 a year pays about 18 percent of that income in taxes, while the highest-income family pays only about 3 percent.
(For those not from this area, I should add that Gary Locke was the governor of Washington state from 1997 to 2005, and that Sue Donaldson served on the Seattle city council. Both are Democrats.)
Put simply, the first number, 18 percent, is plausible; the second number, 3 percent, is completely implausible.
To see why, take a look at the chart accompanying this post. The lowest income quintile now pays less than 5 percent of their income in federal taxes. The top quintile now pays more than 25 percent of their income in federal taxes.
Now let's put those numbers together with Locke and Donaldson's numbers. For the family earning $17,000 to pay a total of 18 percent in all taxes, they would have to pay about 13 percent of their income in state and local taxes. That sounds a little high to me, but not implausible, since our sales tax rate is about 9 percent almost everywhere in the state. (Localities add different percentages, which is why there is no single tax rate for the state.) Food is generally exempt from the sales tax, but cigarettes, beer, wine, and liquor are all heavily taxed.
(If that poor family was a working family with children, they would probably have a negative overall federal tax rate.)
Locke and Donaldson do not define the "highest-income family". If we take the top quintile to mean the highest-income families, we see that highest-income families in this state must be getting more than 22 percent of their income in tax rebates from the state and local governments! If by "highest-income" families they mean the top 5 percent or 1 percent, then the rebates must be even larger.
I had no idea that Washington state — which has had Democratic governors since the 1984 election — was so generous to the well off. Strangely, these massive rebates have been concealed from almost everyone in the state, until now.
Cross posted at Jim Miller on Politics.
(When I saw this op-ed, I thought that the 3 percent might a typo, though it fits the argument Locke and Donaldson are making. I didn't blog on this yesterday because I thought that the number might be corrected today. But I couldn't find any corrections in a quick search through today's paper.
Locke and Donaldson do not say where their numbers come from, so it is hard to guess how they made this enormous error. Most likely, they are cribbing from some leftist study. Either they did not read the study carefully, or the original analysis was flawed, to say the least.
Even so, the editors at the Seattle Times should have caught this mistake. And they should print a correction — prominently — right away.)
Posted by Jim Miller at March 04, 2008 10:50 AM | Email ThisGet with the program!
Posted by: Hinton on March 4, 2008 11:05 AMThe reality is that we're all taxed too much, as my recent submission to the IRS concludes once again. I will definitely go without again this year many of the things I'd like to purchase and do, so that my income can be redistributed and used to buy votes so even more of my income can be taken to buy more votes, and so on.
Posted by: Reality on March 4, 2008 11:36 AMhttp://www.itepnet.org/wp2000/text.pdf
Posted by: Richard Pope on March 4, 2008 11:49 AMThus these top quintiles were able to pay their taxes with inflated dollars, that is, quite easily. Meanwhile, Joe Sixpack, had his dollars deflated by NAFTA.
In the end it doesn't matter, because free markets are popping the ballooned dollars and real work is making a comeback.
I'd say the only danger is letting the financial Mongolfieres delude us into thinking they have something to spend...
I will take my case for example. In the past several years, my income bracket rate was 25%. In those past years, however, I ended up paying only about 9% in Federal income taxes and 7.65% in Social Security and Medicare taxes for a total of 16.65%. The main reason was the high amount of deductions, specifically home mortgage interest and real estate taxes.
I have sold my home an now rent. While I don't have the mortgage interest, this coming year's tax rate will be closer to 20% for Federal Tax plus the 7.65% SS and Medicare. Therefore, my overall federal taxes when up to 27.65%.
You ask how the rich pay so little? It is simply the fact that Social Security and Medicare drop off at a certain point. Add to this that the higher the income bracket the more the income comes from capital gains, and not wages. Therefore, it is taxed at the Capital Gains rates. Add to this higher mortgage interest and other deductions, and the right pay far less than their marginal rate.
The only effective apples to apples comparison is to compare the amount of overall taxes paid, including Social Security and Medicare (since the government robs these funds to pay for regular programs), divided by the total income for the year, including wages, interest, dividends, and capital gains. Only then, will you get what the actual rate each income level pays.
Posted by: tc on March 4, 2008 12:02 PMBack when I was earning less than $20,000, I really did not feel that my taxes were that high. Because they weren't.
When our income was higher, the tax bite got pretty obvious real fast.
Locke is spouting garbage. And to those who say higher income earners get off easy because social security taxes have an annual ceiling (which increases every year, btw), remember that the tax rates are much higher for this group, so that nullifies the other.
But frankly, ss tax ceilings should NOT be removed because that would make social INsecurity an even WORSE deal than it already is for the recipients. Imagine what kind of living people could have in their retirements if they got to invest the full 15% paid into this loser program on their own. 15% is a LOT of money. What it currently pays back is absolutely pathetic compared to what we've already put in and I wish we could just cut the cord and get out of SS now and just say by-by to what we've put in if they would just leave us alone. and stop forcing us to pay into this overly-funded-poorly returning "plan". If we could invest it ourselves just as we do with 401ks, etc not only could we get a far better return, but we could actually pass on OUR OWN MONEY to our kids. With SS as it currently is, you don't. All that $$ goes away. The government is not able to do for people's retirement what people could do for themselves. The sooner people realize that, the sooner they will demand their freedom from SS.
Heck, Patty Murray and Maria Cantwell don't have to participate in social security. Why should we??
Posted by: Michele on March 4, 2008 12:18 PMAnd the 3 percent still looks implausible to me, even if you are limiting it to state and local taxes. For that to be correct, you would have to assume that the wealthiest families spend less than one third of their income and pay little in property taxes. (Or some other combination of very low property taxes and a very high savings rate.)
And, as I am sure you recall, as part of Governor Gregoire's tax package, the legislature reinstated the estate tax, which was intended to hit high income families. An analysis done in 2003 wouldn't include that, but for that reason should not be used, without caveats, for current conclusions.
tc: You may want to re-read the post, carefully, being sure to look at both the op-ed, and the blog entry I linked to. Incidentally, most economists think that the "employer" portion of social security taxes is actually a tax on the individual.
I agree that Pope's link was where these individuals got their numbers from.
However, that is really convoluted reasoning by the study authors. The big change is that as you make more money, less of that money as a percent is being spent buying things- either property or goods. Or so the theory goes.
Of course, that study seems to ignore income tax.
Posted by: swatter on March 4, 2008 12:26 PMI also question the percentages for the lowest income brackets for property taxes. If you are making less than $31,000 here in WA, the vast majority of those people don't own property. Unless their model is somehow counting "pass through" taxes in the rent, which would be dishonest. Yet the model assigns that group a 2-3% figure as a percent of income.
Posted by: Palouse on March 4, 2008 12:33 PMMr. Miller should have done a bit of research to find the report - I recall these same numbers were in the news when Bill Gates Senior was chairing a committee looking at State taxes some time ago.
AND DON'T FORGET THE DEMOCRAT DEATH TAX!!!!!
Posted by: Andy on March 4, 2008 12:58 PMOne thing to remember, however, is that are state taxes are also very regressive and hit lower incomes, and especially the middle class, the worst. Our state doesn't tax income such as interest, dividends, and capital gains, which makes up a larger portion of income the higher one goes on the wage scale. Property Tax, for the most part, is around 1% of the properties value (some places higher, some lower). I do believe, however, that 3% would be low for all taxes.
Posted by: tc on March 4, 2008 01:03 PMSo the argument is that all the savings should be confiscated for the good of the state.
What crap
Posted by: Not a Yank on March 4, 2008 01:13 PMBut leave it to Gary Locke to argue looking at the extreme cases. 1% of earners is just that, 1 out of every 100. The real comparison should be comparing the poorest with that 60% in the middle. Doing so shows a much smaller difference in "percentage of income paid', or roughly 6.4%. But what is so regressive about the poor paying a higher "percentage" when that percentage results in a much, much smaller actual dollar amount paid to support the same services that they tend to use more often than those more well off?
If you look at the poorest earners at $17k a year, 18% of that income is $1,260. But when you look at the median household income in Washington at $54k a year, even 11.2% results in nearly 5 times the dollars paid in taxes, at $6048 a year.
So how is that unfair to the poor? Remember, it is the left that equates fairness to percentage of income paid in taxes, and not dollars paid in taxes. So why is it unfair that a segment of society that benefits more from government programs and handouts pays only a fifth as much in state and local taxes as the median family?
The point here is that it is the left that defines this argument based on percentages of income paid in taxes. But that argument ignores the fact that while someone who is poor is paying $1000 a year to support the state via property taxes and sales taxes, there are others out there paying ten times, a hundred times, or even a thousand times as much for their share - and they are being regularly slammed by the left as being selfish and not paying their fair share.
It's nonsense!
If the left wants fair, then lets consider a flat tax across the board. And I don't mean percentage. Let's take Gregoires $33 billion biannual budget and divide by 2 million state households. That works out to $8,250 per year per household. Let's hear the whining if real "fairness" is implemented and that household bringing in $17k a year is asked to pay its fair share of $8,250, or 7-8 times what they pay now.
So who is being selfish?
Posted by: Reality on March 4, 2008 01:43 PMIt is "progressive" in the sense that it returns a higher percentage of spending back to those low income folks, like most of our retired parents - while being simple - everyone gets the same check, and arguably fair - everyone gets the same amount of their sales tax rebated.
Beats an income tax.
Now, if I could just get a better deal on the B&O taxes I pay...
Posted by: BA on March 4, 2008 01:47 PMGiving rebates or rebates from the feds to the poor will not help the economy or the poor to upgrade their state. The money will be spent on booze, cigarettes and snacks. If the money is even spent on goods and services, it will spent on foreign made products which will help those foreign companies.
It is better for the money to be given to those who know what to do with it. For example, me. Actually, not, and while I know how to produce income, there are many, many others (read rich and filthy) that can do a much better job of creating jobs.
Posted by: swatter on March 4, 2008 02:33 PMMaybe you could comment on Mitt Romney's withdrew speech back on February 7, 2008 at the Conservative PAC convention, where he said that income taxes needed to be cut for rich people and corporations, and increased for lower income people:
"The threat to our culture comes from within. ... [T]he liberals haven't given up. At every turn, they try to substitute government largesse for individual responsibility. They fight to ... remove more and more people from having to pay any income tax whatsoever.
...
It's high time to lower taxes, including corporate taxes, to take a weed-whacker to government regulations, to reform entitlements, and to stand up to the increasingly voracious appetite of the unions in our government!"
http://www.realclearpolitics.com/articles/2008/02/romneys_withdrawal_speech.html
Posted by: Richard Pope on March 4, 2008 03:31 PMIf I get more tax breaks I may opt into the system in a bigger way- somewhat like I was, but still, that is less than 30 employees.
Posted by: swatter on March 4, 2008 04:05 PM(But since you asked nicely, I'll review my own posting policies and give you a hint. In general, I post on national subjects only on my own site. Unless they have a local connection, in which case I will cross post. And in a few cases, where I do not think that my national audience will be much interested, I will post only at Sound Politics.
Other contributors here have different policies -- which is fine with me. We are, after all, volunteers.
Now the hint: If you are interested in my views on these subjects, you may want to search my site using the key word, "regressive".)
Posted by: Jim Miller on March 4, 2008 04:19 PMRichard, what's wrong with eliminating taxes on corporations? Why not eliminate all corporate and capital gains taxes? After all, do not businesses create wealth? Are not businesses funded by capital, and that is paid back as capital gains?
Taxation of corporations and capital gains - and income of individuals - is an economic disincentive to those who create the wealth. Who build the economy. Taxation of wealth creation or acculumation is precisely the WRONG thing to do.
As is taxation of property; over here in China I do not pay property tax. It was a one time 1% when I bought my house. That's it. Possessions - tangible goods - should not be taxed as they are usually used to create more wealth.
So what Mitt posted is 100% correct - we need to take a weed-whacker to government regulations, not just reform but eliminate entitlements (what gives you the right to demand that I pay for your well-being? That should be a personal choice of charity, not government sponsored theft), and cut all taxes on creation of wealth.
Remember, we have the right to Life, Liberty, and the PURSUIT of happiness. You are not guaranteed to be happy or succeed; you are simply guaranteed the chance to do so.
Capitalism inherently guarantees inequalities in results, but some will be fabulously wealthy, most well-off, and some miserable.
Where the State of WA is heading is where China is coming out from - socialism. Which guarantees everyone equal misery. Thankfully this country (China) has figured out the way to improve itself is to turn its economy loose, and let people keep what they make.
So Richard, why not open up the floodgates of capitalism? Get off the back of companies and the wealthy.
TC posted:
Property Tax, for the most part, is around 1% of the properties value (some places higher, some lower). I do believe, however, that 3% would be low for all taxes.
Well, if your house is worth more than 3X your annual income (mine was when I sold it), then you are paying 3% of your income in taxes right there. And I would argue that for most people - especially the wealthy who tend to have $500,000+ homes on $120,000/yr incomes - their share of property taxes right off the top puts them above 3%. The whole premise of Locke and Donaldson is wrong...
Of
An economic thought. If the value of a dollar is based on production, then redistribution of wealth reduces the value of a dollar as there is no associated production.
Raising taxes to give more in the way of entitlements at once reduces the value of a dollar and increases taxes. A stroke of Marxist genius.
Let me explain. Real estate taxes are based on home valuation. The home you bought 20 years ago for 80k is now worth $400k when you sell it.
Assuming the same % rate of tax, (not) The actual taxes paid on $80K is considerably less than the taxes paid on $400K. The live-in home owner has not derived any income or cash out of the residence until the home is sold. So when the home was purchased the taxes were $800.00. Now the taxes are $4,000.00. Did the home owner's income increased by the same percentage. In many cases the answer is no.
On the flip side the person receiving entitlements gets more $$$, Entitlements have increased by a least the same percentage as inflation. .
To say it another way, people making $250k a year spend more then 3% on taxes. Much more. especially when one considers that any number of services cost the rich more because built into the service is the cost of the "freeloaders".
Check out costs for medical services for example. The people paying for the service are also paying for the freeloaders receiving free medical services. The same may be said of auto insurance and any number of other services.
The added freeloader cost are seldom added to the matrix in computing "taxes" although they are in fact mandated by government regulations.
Posted by: Snuffy on March 6, 2008 07:55 AM