It is incorrect to separate Social Security Trust Fund from Income Tax.  The Trust Fund is used to fund CURRENT expenditures.  This is the equivalent of an INCOME TAX reduction.  Thus, the two should be counted together (David Walker doesn't mind counting them together when sounding the alarmist horn for the future).  When you do this, the share the rich pay shrinks enormously.

Their real fear is they may have to pay a fair share when SS Trust fund bonds come due. 

In old days it was possible to argue that the rich, unlike the middle class and the poor, have no return on their money paid as taxes, as they do not rely on state provided services.

Now I conjecture, due the general conservatism at the top of the income scale, that the rich wished to have the current war and in general, expansive military posture that requires massive military spending. (If they do not like it, they could contribute to Nader who also does not like it).

I also do not accept the numbers of CBO. The last time I read them, they apportioned corporate tax among the individuals who own stocks of corporations, which I find unjustified (unless you apportion unrealized capital gains too).

Good piece, one small point. I'm not sure our tax system is progressive anymore. Or, alternatively, it is progressive in the wrong way.

By which I mean that I understand that capital gains (dividends, long term capital gains, real estate, etc.) are taxed at a significantly lower rate than earned income. As such, while it's true to say that the top 1% pay a higher rate than other brackets, it would be even more true to say that the top 1% of income earners pay a higher rate, but that people who sit on their fat asses and collect interest on their inheritances pay a lower rate. (Although I guess plastic surgery and designer gyms have made the fat asses part less true).

What I've never understood is why progressives don't attack the dual taxation system for capital gains vs. income gains. The classic libertarian response that this is double taxation, as with all libertarian tax arguments, is misleading, insofar as we are all double (and triple and quadruple, etc.) taxed, as we get taxed on income, on consumption, on production, etc. etc. etc. The fact remains that someone who works for a living pays more in taxes than someone who, by virtue of accumulated wealth, does not need to work for a living and collects the bulk of her income through investments.

I have yet to hear a convincing argument that this is fair, efficient, or otherwise desirable. And I think the vast majority of Americans would agree that earned income should be taxed less than investment income, if not for all the propaganda out there.

Kudlow's fantasy is helped by the fiction that cutting marginal taxrates generate more revenue for the govenent than is lost. I hope Bruce Barlett's piece in the Times does away wit this nonesense for good.

There is no doubt that unless all taxes are taken into account there is no way to judge fairness. I have had made payrolls in which we withheld not income tax but did have FICA to withhold.

I do not quite understand why the percentage of the whole revenue paid by which group is not any issue of fairness. It would not be fair to have just the wealthiest to pay for all of government if that were the outcome. It is also unlikely an extremely dangerous political outcome.

A question about efficiency. If allowing high income earners a disproportionate low rate of income tax spurs investment allowing everyone a higher income would that be worth the tradeoff.

One last point. The conservatives love talking about the marginal rate of tax. What is rarely discussed is the effective rate of tax. My understanding is that it is about 19% and has been about that for years.

Daniel A. Greenbaum

If you make 60% of the money, you should pay 60% of the taxes.

It's really that simple.

Seems like one way to make the tax burden fairer is to remove that $97,500 cap on SS contributions.

"If this all sounds class warfare-ish, it’s not meant as an attack on the wealthy."

Don't get defensive like this. The term "class-warfare" is an invention of the wealthy to use in the lowest form of political debate. You can see how successful they've been when people on the other side of the debate start using the term.

Progressive taxation does not equal "class warfare" any more than questioning the government makes you a traitor, despite what the right wing would have us believe.

You're right. According to CBO data, the top 1% pay 37% off all income taxes and 25% of all federal taxes.

That's because their share of social insurance taxes are low--they pay 4% of those taxes compared to 16% for middle income families. Their biggest tax from this perspective: the corporate tax, because CBO assigns it based on their wealth holdings. The top 20% of households pays 87% of corporate taxes (see figure b).

I was mindful of that point while writing this--'fair' is surely a normative concept, in the eye, or wallet, of the beholder.

I'm implicitly arguing that a more progressive system is a more fair system, based on the widely (though not universally) accepted notion that those with greater ability to pay should pay more.

Moreover, much of the wealth they've accumulated was accomodated by public infrastructure. They benefit more from society, so it's fair for them to give more back.

But others will surely feel differently.

I’m not sure what you mean by the Trust Fund in relation to the income tax. SS payroll taxes are borrowed for general obligations, but must be repaid in the future, thus lowering future payroll tax requirements. Thus, it can easily be argued that SS taxes should be separated from other taxes when talking about the “fairness” of the funding of general revenue.

Good points. I invented a new statistic yesterday to get at this point, but I'm not sure it's useful. According to CBO, in 2004, the top 1% paid 25% of fed taxes, and held 15% of all income, for a ratio of 1.55. It's a measure of progressivity: your tax share relative to your income share. In 1979, that ratio was 1.65, 1.60 in the mid-90s, so by this measure the fed code is less progressive--their tax share has gone up less proportionately to their income share. Still not sure if it's useful.

No it was not possible to argue that the rich did not rely on state provided services.

Who uses consular services overseas? Who resorts to the Federal Court system more? Who is more likely to need an assist from the Coast Guard? Or have some military helicopter get them off the ski-mountain? Who is more likely to own a private plane or have access to a corporate jet and fly in and out of taxpayer subsidized general aviation airports?

I could go on endlessly and not even get into the military argument. The notion that rich people do not rely on public services as if those navigational aids and lighthouses, as well as the roads, and the benefits from government funded drug research all somehow come out of nowhere has always been a cartoon notion akin to the one that has us spending huge money on foreign aid. Which when examined is a small fraction of government spending that generally comes with mandates the spend the money on American goods which ends up making it a backdoor government subsidy to corporations. Which goes largely back to the rich. As do the bulk of agriculture subsidies generally.

Such suggestions don't survive the first examination of the budget pie sliced by sector. The rich get plenty of government spending, the notion that they never did is just Reaganism akin to the Cadillac Welfare Queen. Long on anecdote, short on numeric analysis.

Piotr says

"In old days it was possible to argue that the rich, unlike the middle class and the poor, have no return on their money paid as taxes, as they do not rely on state provided services."

While it may have been possible to make that argument, it was not a good one. The rich have always benefited much more from tax funded services than the poor, not less. Who gets more benefit from the highway system or air travel that supports commerce? Or from the police and fire departments that protect private property? Or from the military, no matter what the war? I could go on and on. Social services that aid only the poor were always a tiny share of the federal budget. The rest of the budget gives the most benefit to those who have most to lose.

I see I messed up and should have replied to the original post above, as Bruce Webb did, much more eloquently than I. Thank you Bruce! This is one of my Tax Day hot buttons.

Some points I'd like cleared up:

1) What ratio of services are rendered to poor vs. rich? (Piotr touched on this.)

2) Since we have had a progressive tax code for a pretty long time (varying around a range) isn't it fair to conclude most Americans think it's (close to) fair now?

3) Why is unearned income not income?

The first is one I have not seen addressed by those most capable--economists and other aficionados of government policy arcana. I find it easy to accept that since our diplomacy and military support our "state interests" (read "trade") it is almost exclusively to the benefit of shareholders when we run up a military budget larger than the rest of the world combined. Arguments that export means jobs surely are thin nowadays. (More likely it means exporting jobs.)

This infatuation with flat tax is a 1) a pipe dream, since many exceptions will be added, and 2) contrary to the wishes of voters.

Dividends are most definitely not taxed twice. When the profits are called corporate income, they are not yet dividends. That happens at the moment of distribution. They are not taxed in transit, only after becoming an individual's possession. Death tax is another lie--no one dead is taxed, nor is dying taxed. Recipients are taxed, who are supposedly alive.

Would Mr. Bernstein be willing to tackle the cost/benefit ratio of rich vs poor? Factors other than military would include efforts of the Commerce Dept, Agriculture Dept, and agencies such as weather and air traffic control, along the copyright and patent protection, the civil court system, GPS, NASA solar monitoring and satellite support (tracking space junk, etc.).

Even local police are more useful to rich than poor. The question is proportion, on which my hunch is that it is wildly disproportionate, with only basic and meager services to poor individuals compared the panoply of attention lavished on wealth.

    Why is it when the needy expect the government to assume some of their personal responsibilities it is called entitlement, and when the wealthy expect the government to do the same respectively, it is not?

      Generally in the churches, it is the member who give the most that sit in the pews at the front.  Heck, my family even bought one out right.  It seems that today the wealthy are sitting right up front yet sitting on their hands while the donation plate floats by.

    They should be critical of their own behaviors when talking about personal responsibility. 

    They once used "entitlement," a misappropriated term, for promotional politics.  Now, they are manipulating "class warfare" to be a concept that invokes over simplified and negative beliefs.  If this trend of ever widening gap in wealth hoarding combined with unequal taxation continues, the term that they condemn just might give some the wrong idea with a strict observation and literal reading.  When connotation becomes denotation.

This discussion -- and many of the comments are bright, thoughtful, and well-stated -- is pointless.

Tax policy is always fair -- we're a democracy.

A key thing the Kudlows of this world keep peddling is that tax cuts increase revenue to the Treasury. They don't. The evidence is overwhelming that they don't. They cut revenue. The first three years of the Bush administration saw declining tax revenues for the Treasury, and they didn't reach year-2000 levels until 2005!

It's amazing that supply-siders seem to get away with their lies, year after year after year, even in the face of actual government statistics, readily accessible on government websites, to the contrary. It would be refreshing to see reporters actually check stats once in awhile.

Every single time supply-siders have done their thing, they set records for deficits and new debt. If their voodoo economics worked according to their claims, that would never, ever happen. We'd see surpluses, not record deficits. By definition.

I think until we completely crush that myth--the myth of glorious increases in tax revenues due to tax cuts--we won't be able to bring about true tax fairness in America. Until we show the flat-earthers (supply-siders) that the world is NOT flat (tax cuts do not pay for themselves, ever), enacting truly progressive taxation in America will fail.

Some random points:

1. Much of the wealth these days in inherited. The Walton family is worth $80 billion. Sam earned it, they inherited it. Their efforts to get the estate tax repealed will save them about $40 billion.

2. Capital gains at death are not taxed, this allows multi-generational dynasties to escape the bulk of the tax burden.

3. Rich people get more value from public services than poor people (Social Security aside). A simple example. If I earn $100 per hour and a new public highway is built which saves me an hour per day in travel time it is worth $100 to me. For a person earning $10 the same hour is only worth $10. The same goes for the benefit of protecting my property that the police provide.

4. The EITC may be a practical way to help the poor, but what it does is allow firms to underpay employees and then shift the costs to the general public in the form of a federal expenditure. The underpaying firms are getting a free ride. A guaranteed minimum wage would shift the costs to those currently escaping them.

5. All proponents of a flat tax always propose a level which is less than the current top income tax rate. Simple logic shows that they will gain and that everyone else will lose under such a scheme. The number of conservative policy proposals that aren't motivated by self-interest can be counted on the fingers of the hand of a three-toed sloth.

--- Policies not Politics
Daily Landscape

I do not agree that the “effective tax rate” is a good indicator of fairness. The economic system we earn our livings in is set up within certain structural and regulatory parameters that heavily favor the welfare of those with assets, ie the wealthy.

One good example of this is the way recently relaxed bank regulations specifically regarding lending rules, along with low interest rates (determined by mainstream economists who support the basic business models that favor the wealthy), have led to a huge influx of cash/demand into the real estate market, leading to very generous gains in property value. While this has led to a general economic surge in many sectors (buoying the supply-side myth of rising tides floating all boats), it has benefited wealthy land-owners far more than it has lower and middle income property owners.

In addition, the real estate boom/bust functions as yet another transfer of wealth from poor to rich first, by liberating all that cash that was previously frozen in long-term real estate assets through questionable financing schemes and moving it into the retail marketplace (where guess who is the major beneficiary?) and second, by seizing real estate assets through foreclosure when the high risk loans kick into their less favorable, higher cost modes, untenable for those who are already in modest financial shape.

It would be far fairer if wealthy people were to understand their good fortune to be a function of the very system by which their financial fortunes have blossomed, and were to pay high taxes with enthusiasm, as a measure of their appreciation for, or as an investment in, the economic system that has so favored them. Perhaps as a token of their hopes that the rest of society were also well supported within the larger “society,” wealthy taxpayers could see paying into the system as a net good, while they themselves remain well off.

Said more simply, wealthy people benefit inordinately from an economic system that favors inherited wealth and capital assets over labor assets. This is not a result of laissez-faire capitalism, not the invisible hand (neither of God nor consumers), nor some mystical force particular to the good ol’ U.S. of A., but rather a set of rules and regulations implemented and held in force by the Keepers of the Golden Rule. He who has the gold makes the rules.

Wealthy people should be liable for the lion’s share of tax liability. That would be fair. And they should be thankful to the government for fostering and protecting their good fortunes. That would be generous. This would require us to abandon the tired myth of the yeoman government-hating entrepreneur finding success as a marketplace gladiator slaughtering the competition, in favor of a vision of America in which all members are part of the whole and the welfare of one is tied to the welfare of all, with a government dedicated to promoting the welfare of all.

Fat Chance.