The tax burden of the top quintile

I finally got around to read the Tax Policy Center’s riveting report, “The Distribution of Federal Taxes, 2009-2012.” (The TPC is a joint initiative of the Urban Institute and the Brookings Institution.    Using different scenarios, they looked at the distribution of the federal tax burden by quintile form now until 2012.  Their default stance assumes that the AMT patch will expire, none of Bush’s tax cuts will get continued (though some probably will stay on), and that certain recent Obama tax cuts (like Making Work Pay) are not permanent.  They also break out the tax burden for the last quintile, which is great because it helps us elaborate on Lane Kenworthy’s post that I mentioned yesterday.

The top quintile is progressive within itself

What I take away is that taxes are pretty progressive within the top quintile, but there is even large variation within there.  There’s probably an argument to be made for raising taxes on the lower half of the top quintile.

I haven’t found, or made, a graph showing how much of GDP is earned by each quintile and within the top.  I do have this graph from an earlier post which shows the level for the top .01%:

It makes sense that they face progressive taxes

So for at least the top .1 percent, and probably the top quintile as a whole, federal taxes are very progressive.  To make them less progressive, there would have to huge state tax credits that lower the tax rates at the top of the top quintile.  I haven’t heard of any, so my guess is that this trend holds once we include state and local taxes.  The authors do explain:

The share of federal taxes paid by households at the top of the income scale exceeds their share of total income. The top quintile, for example, will earn just over half of total cash income in 2009 but will pay two-thirds of all federal taxes (table 2). The top 1 percent of taxpayers will earn 16 percent of total income and pay 23 percent of total taxes. In contrast, households in the middle quintile earn just over 14 percent of total income but pay less than 11 percent of taxes. Because it faces a negative effective tax rate, the bottom quintile will pay a negative share of taxes.

I have waded through the report and found more nice charts and interesting quotes, but they’re after the jump.

It is true that the bottommost taxpayers, the lower two quintiles, have a net negative income tax rate at the federal level for 2009:

The top quintile will pay 91 percent of the tax from their 53 percent share of total income, and the top 1 percent’s 36 percent share will more than double the 16 percent of income they will get. In contrast, the bottom two quintiles will collect a net subsidy of almost 10 percent of individual income tax revenue.

Also:

The top 1 percent of the income distribution will see their ETR jump by more than a fifth from 26 percent in 2010 to 32.2 percent in 2011 (table 5 and figure 2). In addition to the impact from the statutory rate increase for the top bracket from 35 to 39.6 percent, upper-income tax units will be hit hard by the increase in the capital gains tax rate from 15 to 20 percent and by the leap in the rate on qualified dividends from 15 percent to as high as 39.6 percent.

Here’s what it means to say that payroll taxes are regressive and capital gains taxes progressive:

The top 1 percent of the income distribution (with 16 percent of total income) will pay more than half of the corporate income tax and nearly three-fourths of the federal estate tax, but less than 4 percent of payroll taxes. In contrast, the bottom three quintiles—with just over one-quarter of total cash income—will incur just 8 percent of the corporate income tax and less than 1 percent of the estate tax, but almost one-third of total payroll taxes.

Depending on how you react to these findings is a pretty good indicator of your political predilection.