Archive

Archive for the ‘Fiscal Policy’ Category

Who Pays U.S. Income Taxes?

December 4, 2017 Leave a comment

My last post used 2015 tax return data from the IRS to see if “Bernie Care” could be financed using the tax payments of the “rich.”  Using that tax return data, it is also instructive to see just who is paying the income taxes collected in the U.S. The table below is constructed to show how much rich people pay into the income tax system and, obviously, people may differ regarding the definition of a rich person. So I picked out an Adjusted Gross Income (AGI) of $200K and above as an arbitrary, but not unreasonable, definition of the rich for use in the table. For each class of AGI, entries in the table are the ratio of taxes paid to total taxes collected (called the Tax Share) and the ratio of the number of returns to the total number of returns (called the Return Share). Regarding the return shares, the zero entries mean that, rounding up to two digits, the calculated ratio is much less than one percent.

Adjusted Gross Income Tax Share Return Share
$200,000 under $500,000 0.21 0.036
$500,000 under $1,000,000 0.11 0.01
$1,000,000 under $1,500,000 0.05 0
$1,500,000 under $2,000,000 0.03 0
$2,000,000 under $5,000,000 0.07 0
$5,000,000 under $10,000,000 0.04 0
$10,000,000 or more 0.10 0
Total 0.59 0.05

The table reveals that about 60 percent of the taxes paid are coming from those with an AGI of $200K and above. Only about 5 percent of the returns being filed in 2016 for the 2015 tax year provided this tax revenue. Thus a small number of returns provided more than half of the U.S. income tax revenue on returns filed in 2016 for 2015 AGI.

Since the personal income tax system provides the lion’s share of federal government tax revenue, this table provides one possible basis for the claims, often found in the media, that the rich pay the lion’s share of the funds used to finance the activities of government.

Advertisements

Can the Rich Pay for “Bernie-Care?”

November 2, 2017 Leave a comment

In an earlier post, I reported the results of an Urban Institute study which attempted to estimate the cost of Medicare-for-All or “Bernie-Care,” the latter name given by some people to a Medicare-for-All system because Senator Bernie Sanders has advocated this plan. The Urban Institute study estimated the cost of such a plan to be between $2.0 Trillion and $2.5 Trillion. Here I ask if the rich, however defined, can pay for such a new medical insurance system.

Before going further, it should be recognized that a definition of the rich is inherently arbitrary and so the only sensible way to address this issue is to report a range of income classes and let the reader decide which one is relevant. That is what I will do in what follows below. The data comes from Table 3 of the IRS tables reporting statistics on the U.S. income tax and I will confine the results to the latest year available from the IRS, 2014. Read more…

The Cost of “Bernie Care”

September 25, 2017 1 comment

Senator Bernie Sanders has expressed support for and formally introduced a plan for a health insurance system to be run by the federal government which has been called “Bernie Care” in some media outlets.  A number of other Democratic politicians have also expressed support for this idea. This is quite likely to be the Democratic Party response to the problems with Obamacare. Indeed Barack Obama expressed his own support for this national health insurance program before his first election as President (I saw the videotape of his statements at that time) but he claimed the country was not yet ready for such a health insurance program. What would such a program cost? The Urban Institute has published a study to answer this question. Read more…

Tax-Income Ratios in G7 Countries

September 13, 2017 Leave a comment

In a previous post, I provided data on the ratio of tax receipts to GDP in the U.S. It was shown that the U.S. ratio fluctuated around 20 percent of GDP since 1960. Here I provide data on the remaining G7 countries (Canada, France, Germany, Italy, Japan, and the United Kingdom) which illustrates how different the U.S. is from many European economies. Below is a graph of the data drawn from the OECD (the Organization for Economic Co-operation and Development) covering 1995 to 2015.

The graph shows that tax-income ratios are much higher in the six G7 countries than they are

in the U.S. In 1995, the tax shares ranged from a low of 27 percent in Japan to a high of 43 percent in France. By 2015,  the tax shares range from 32 percent in Japan to 48 percent in France. In short, none of the six countries has a tax share as low as the U.S.

The Entitlements Crisis

The aging of the U.S. population is increasing the transfer payments made by the U.S. government and the obvious question is how the U.S. will finance these payments. It is unlikely that this can be done by borrowing (it is doubtful that the U.S. can borrow trillions of dollars each year) so this suggests that the tax-income ratios in Europe are what may be imposed in the U.S. as the entitlements crisis unfolds. This is what is meant by the charge that many politicians want to turn the U.S. into a European welfare state. What remains to be seen is if the U.S. taxpayers will agree to such a historically large increase in the tax-income ratio in the U.S.

The U.S. Tax-Income Ratio

August 17, 2017 1 comment

I recently saw a news report about federal government tax receipts and I began to wonder what trends, if any, have been present in the public’s support of government as measured by its tax payments. Most media reports that I have seen focus on the dollar amounts of federal government tax revenue but it is more informative to include state and local governments as well so that we can get a more accurate measure of public tax payments to the government.

But rather than looking at tax payments in dollars, it is more useful to look at tax shares of our incomes. The economy grows over time and so it is more informative to see what fraction of our incomes are paid to the government so that we can adjust for the size of the economy as it changes through time. For this post, I will use Gross Domestic Product (GDP) as a measure of our incomes and I will use Federal plus State and Local receipts to capture the revenues of all sorts that flow to the government. All of the data was drawn from the St. Louis Federal Reserve Bank FRED database which is freely available to the public. The data is annual and it covers 1929 through 2016. Read more…

The Government Deficit and the Fed

April 13, 2017 1 comment

The Federal Reserve recently announced an increase in the interest rate which it sets. This has implications for the government deficit which may not be well understood by the average person so I thought that it might make sense to discuss the connection between the Federal Reserve and the government deficit. What this discussion reveals is that the Fed has been helping to finance the government deficit in the U.S.

The Consolidated Government Budget Constraint

There is a relationship between the government and the Fed known as the Consolidated Government Budget Constraint that is written below.

Spending + Interest Payments + Net Transfer Payments =

Tax Receipts + Change in the Stock of Debt + Change in the Monetary Base

The items on the left side of the equal sign are the uses of the government’s funds. Spending refers to the fact that the government buys goods and services, it makes interest payments to the holders of government debt, and it makes transfer payments to individuals in the economy. The right side of the equation is the list of sources for the government’s spending. It receives tax payments, it issues or retires bonds, and the last item reflects bond purchases or sales by the Federal Reserve. It is these last two items that reflect the connection between the Fed and the government deficit. Read more…

Minimum Wages: A Survey of the Evidence

January 3, 2017 4 comments

With the new year, minimum wages are rising in many cities and states, including Michigan where I live. I have written before on this subject (a link is given below) but I ran across a nice article containing a very readable summary of the evidence on this subject. It is a nice read for non-economists because it has no equations (gasp!) and it is not very long but it does provide an accessible summary statement of the empirical scientific evidence on the effects of the minimum wage. But I have another motive in providing this summary of the evidence.

The nature of scientific inquiry is that not all studies on a subject produce the same answer. As a result, more than one study is necessary because, as the evidence emerges, hopefully a consensus forms about the problem that is being studied. So undoubtedly there are studies suggesting that there is no connection between smoking and cancer but it seems quite likely that the preponderance of the evidence, and the highest quality work, reveals a link between smoking and cancer. I once saw Barack Obama “cherry-pick” evidence, citing one particular study indicating that minimum wages do not cause unemployment. But one study isn’t important; the entire literature is and here is a summary of what that literature shows.

An extensive survey by Neumark and Wascher (2007) concluded that nearly two-thirds of the more than 100 newer minimum wage studies, and 85% of the most convincing ones, found consistent evidence of job loss effects on low-skilled workers.

This statement is taken directly from the article linked above. The Neumark and Wascher (2007) article is a scholarly study providing a more thorough analysis of the evidence.

The good news for an economist like me is that what we tell students in Econ 101 is correct: minimum wages cause unemployment. Some workers gain and some lose and the tragedy of the policy is that it harms those in our society who are the least-able to deal with a job loss and the loss of skill-accumulation that goes along with working. Namely, the policy harms people at the low end of the income distribution. This is just another example, in a long list of examples, of how a government can harm some of its citizens while the politicians, implementing the policy, claim that it helps those citizens. As long as the public is unaware of the evidence, politicians can get away with this destructive behavior.

Previous Post on Minimum Wages: minimum-wages-to-rise-in-2013

Economics One

A blog by John B. Taylor

The Grumpy Economist

One economist's views on economic policy.

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: