Tax Update Blog: Permalink

"That's one reason I find misguided arguments to increase the effective tax rate on the top 5000 or so taxpayers; they aren't the same people every year, and attempts to go after them are likely to do more harm than good."

Maybe I'm just a liberal in the wrong place at the wrong time, but to me that doesn't diminish the argument for making them pay their share. The top 5000 earners may only reach that point once or twice in their lives, but they're doing so by earning hundreds of millions or more in a single year, more than the average wage earner would earn if they worked every day and lived to be 1000.

Attempts to demonize these people aren't exactly productive, either, but I think attempts to get these, the people with the most capacity, to do more to help fund the entities that provide services to the less fortunate are entirely fair.

I would like to know what leads you to the premise that "many of those who hit the top income levels do so based on a one-time event..."

The very first chart in the report states 82.7% of the top 1% in 1996 remain in the top 10% in 2005. 42,6% of the top 1% remain in the top 1%. 42.4% of the lowest quintile remain in the lowest quintile. It does depend how finely you want to splice it, top 10%, top 1% or top 0.01%.

Unfortunately, that chart does not appear to even adjust for basic life changes, such as a Harvard student graduating into the workforce or a CEO retiring. A rise or decrease in income is not necessarily a change in economic standing.

For a look at how age effects income, check out tables A4 and A5 on pages 21 and 22. These charts include only people age 25 and up, largely limiting the data to people already working full time in the base year. Most interesting, table A5 includes income based on participants only. It shows close to 80% of the people in the lowest quintile stayed in the two lowest quinitles for the two decades ended 1996 and 2005. It also shows 80% of the top 1% stay in the top 10% for those two periods. That is in spite of the fact that some in that top 1% must be retiring, again, not a reflection of loss in economic class. This chart is interesting because it compares the group against itself over time.

A more thorough report that addresses the real question of whether people from rich families get richer than people from poor families is here. http://www.economicmobility.org/assets/pdfs/EMP_Across_Generations.pdf

It is an entirely different issue as to whether choppy income should result in a tax break. I have not seen an attempted rationale for that, I will look for it in the Wall Street Journal opinion page.

Erich, Thanks for the thoughtful comment. I say that many of the top taxpayers are only at that level once (and here I'm talking about the top 5000 taxpayers, with incomes over $10 million) because in my practice almost the only taxpayers who ever get to that level are taxpayers who have sold a business. I know that Bill Gates, Paris Hilton, and Warren Buffett are out there, but I don't do those returns.

Ah, the top 5,000 would be the top .004% of tax filers, which I think is left unaddressed in the Treasury Report. Yes, I imagine many who reach that point having sold a business then drop down to the top 2 or 3% living off the income, along with their direct offspring.

If the point is the super rich are only super rich briefly, perhaps the word "poor" in the blog title should be replaced with "super rich." However, based on the Treasury Report (which doesn't seem to even consider such basic things as retirment), 80%+ of the top 1% stay in the top 10% for at least a decade, and most likely many more years, so it does seem the rich stay largely the same.

That income does more for the rest of us reinvested in the process by which it was earned in the first place than it does being usurped by government, funneled through a bureaucracy that employs a bunch of hacks who happen to be the in-laws of elected officials, and then paid out not for something the consumers demand but for something the government thinks we ought to have.

It's not a question of "fairness" of after-tax incomes - - even though "fairness" is a subjective term thus that question should be left to the consumers ourselves, which it is in a free market - - it's a question of whether it can be seriously argued that that capital - in this case, if you comprehend Schumpeter, precisely the capital that is fueling the most, and most efficient, growth in the private sector (which is what creates wealth and jobs for the rest of us) is better removed and spent by the federal government - on bridges to nowhere, studies of how cow farts cause global warming or other pet projects.

There are also the facts that tax revenue rises faster, and the share of the taxes paid by the top 1%, 5%, 10%, 20%, 50% of taxpayers is higher, when those top marginal rates are lower.

And even if some of the rich are rich more than briefly, why is that bad?

The question is whether the poor are poor only briefly and the answer for most of them is YES.

The trends in both legal and illegal immigration over the last 25 years have been more and poorer immigrants. Yes the number of poor people in the US increases every year but only by a fraction of the number of poor people who emmigrate here. People ARE moving up - just being REPLACED more than one for one with NEW poor people.

Could more be done through access to higher education and personal finance courses in high school? Yes. But absolute economic mobility is MUCH greater than it was in the 1970s when I was growing up.