Rich Getting Richer, Paying Less and Less in Taxes

David Cay JohnstonLast week, David Cay Johnston reported, The Top 0.001 Percent Are Different From You and Me. He provided data showing that the super rich are doing vastly better than even the rich. The numbers are striking. Consider the period from 2003 through 2012. If you look at the bottom 99.9% of the top 1%, you see that their average incomes rose from $876,000 to $1.3 million. That’s an increase of 48%. But if you look at the top 0.1% of the top 1%, you see that their average incomes rose from $76 million to $161 million. That’s an increase of 111%. We know we have an inequality problem and this just shows that it is accelerating.

Johnston also went into the way that taxes are all screwed up for this group too. If we look at total federal income taxes, the more people make, the less they pay. In the top 0.001% of the top 1%, the average amount of this tax paid is just 17.6%. But the top quarter of this group plays less: just 16.6%. Meanwhile, the bottom 99.9% of the top 1% pays 23.5%. Johnston didn’t go into it, but even this is unequally divided, with those at the bottom end of the top 1% paying a lot more than those at the top. Note also that those at the very top pay effectively no payroll tax. But even those at the bottom of the top 1% pay only about a quarter of what the rest of us pay — because so much of their income is above the payroll tax cap.

What Johnston also didn’t talk about is the fractal nature of inequality. What he described about the top 1% is true of the entire income distribution: the further people get up the income scale in a relative sense, the bigger the payoff. So rising 20% in terms of your income standing will not increase your income by 20%; it will raise your income by 100% or 200% — something much larger than 20%. This is largely why no one ever feels rich: they always see people who are in their income range but who have far more money. Those people making $161 million per year know people who make a billion. So they think of themselves as “middle class.”

Johnston has done calculations that indicate even while the rich are getting richer and their tax burdens are getting smaller, the middle class is seeing its incomes decrease while its tax burdens go up. For the bottom 80% of income earners from 2003 through 2012, average incomes actually fell. But they are paying more in taxes. Consider just the payroll tax, which is 15.3% right off the top. That’s what we all pay. That tax alone is almost as much as is being paid by those who are making $161 million. When conservatives call for a flat tax, they never include the payroll tax. The idea is to make the taxes that rich people pay flat so that they pay even less.

The reason we have this situation is that the rich are well organized and are incredibly good at misdirection. They’ve got roughly half the nation thinking that the real reason the middle class is struggling so much is because poor kids are getting free school lunches. I say it all the time, but it bears repeating: this is not sustainable. Eventually, the whole system falls apart, and that hurts the rich and the poor. But I suspect the United States will fall apart in a stable way — slowly become a banana republic. In many ways, it already is. But don’t worry. Just keep looking at the fire and the projection of the big head. Pay no attention to that man behind the curtain…

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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