Minor Thoughts from me to you

The Revenue Deficit From Progressive Tax Rates

The Revenue Deficit From Progressive Tax Rates →

Michael Solon, writing in the Wall Street Journal:

Why? A more progressive tax code now leverages the negative impact of slow economic growth. The share of all individual income taxes paid by the top 1% has risen to 41.8% in 2008 from 17.4% in 1980—but almost two-thirds of the income from the top 1% comes from nonwage income, including capital gains, dividends and proprietor's profits.

Individual income taxes as well as corporate taxes are now far more rooted in the shifting sands of volatile business income and capital profits rather than in the terra firma of wage income that stabilizes payroll taxes. From 1960 to 2000, payroll taxes were never lower than in the previous year, individual income taxes dipped only twice, and corporate taxes dropped 11 times. Since 2000, individual income and corporate tax revenues dropped five times, while payroll taxes fell twice. Not only do revenues from individual tax returns drop more often now. They fall more severely, with recent collapses of 14%-20% versus the 3%-5% range before 2000.

If "the rich" pay all of the taxes (and they pay a massive share in the U.S.) than tax revenues will be directly tied to the fates of the rich. Right now, the federal government needs high income earners to continue earning high incomes. As soon as the high incomes take a hit, tax revenue takes a massive hit.

We now have a government that has a massive incentive to ensure that "the rich" never see their incomes drop. We might have a more just government if we evened out the tax code, so that income taxes were spread more broadly and more evenly over the entire country instead of being concentrated over a very small portion of the country.