How Progressive is The United States Income Taxation System—and Why is it More Regressive Today?

From the Communist Manifesto: “Nevertheless, in most advanced countries, the following will be pretty generally applicable. 1. Abolition of property in land and application of all rents of land to public purposes. 2. A heavy progressive or graduated income tax. 3. Abolition of all rights of inheritance. 4. Confiscation of the property of all emigrants and rebels. 5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly. 6. Centralisation of the means of communication and transport in the hands of the State. 7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan. 8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture. 9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.  10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c.”

I am lecturing on the Communist Manifesto in a few days and I anticipate a question about the progressive income tax plank of that famous what-is-to-be-done list. There are also planks about free public education and central banking that might stir student curiosity. Several of these other planks have come to pass in some partial form or another. Are we a communist society? A socialist society? We’re neither, and the indication is that the realization of these planks in practice move society towards a socialist end, which is a means to communism, but do not complete the transition (the final destination is never clearly defined in Karl Marx’s work). Planks 1, 3, 6, 8, and 9 if achieved would signal a clear path to socialism. Planks 2, 4, 7, and 10 less so (obviously). Why are so many planks at least partially institutionalized in a capitalist system? Based on what I have argued on Freedom and Reason, the problem of capitalist crises and the emergence of the corporate state necessitate many of these appearances. The ultimate question in all of this concerns social class, not one of innovations from an itemized list generated more than 170 years ago.

In preparing for these questions I have been looking at recent facts and trends and found information on the question of income taxes that I want to blog about today. Also, Tax Day is not that far off and records are already arriving in the mail. The Internal Revenue Service is slower with data dumps than the Bureau of Justice Statistics, but these are fairly recent (2018 and 2019 numbers). These statistics come from the Tax Foundation. First, the United States sits atop a huge economy. Income captures only part of it. In 2019, taxpayers reported earning almost 12 trillion dollars in adjusted gross income. They paid some paid some 1.6 trillion trillion in individual income taxes. The top one percent of taxpayers paid an average individual income tax rate of 25.6 percent, which is more than seven times higher than taxpayers in the bottom 50 percent (which is 3.5 percent). The share of the federal individual income paid by the top one percent was nearly 40 percent of all revenue. The top 50 percent of all taxpayers paid 97 percent of all individual income taxes (the bottom 50 percent paid the remaining 3 percent). The top one percent paid a greater share of individual income taxes (at nearly 40 percent) than the bottom 90 percent combined (just over 29 percent).

Does this mean the tax structure is progressive? Not nearly as progressive as it was under Eisenhower (I am sidestepping the matter of wages versus income, earned and unearned, to keep things simple). Johnson slashed taxes in the 1960s, fulfilling Kennedy’s promise the Chambers of Commerce and the globalists and kicking off the trend towards less progressivity. Clinton raised taxes in the early 1990s (within only a few years, the nation started running budget surpluses) but then, beginning with G.W. Bush, a new wave of tax cutting was initiated. To capture these changes, I share a chart from Thomas Piketty and Emmanuel Saez from a few years ago published in the Journal of Economic Perspectives. Given the long throw of history covered in this blog, the article is recent enough for our purposes today, which are, admittedly, not very ambitious. The charts cover other forms of taxes, so this will allow me to make a point about progressivity overall.

As you can seem the system remains substantially progressive on the income side. The pattern has not changed much since 2004, so, as I said, this article will do (if it doesn’t, please let me know in the comment section). What was sharply reduced after 1960 were corporate taxes and estate taxes. Moreover, payroll taxes have expanded, and these impact workers the most. Thus, despite the retention of a substantially progressive income tax scheme, the overall system of taxation has become rather regressive. Deeper questions remain unexplored: what and who generates income and how do we reckon wealth in discussions of inequality? The superrich have stores of natural wealth and the social surplus that income tax statistics don’t capture. This means looking at estates, etc.. But this must be said about the taxation of income: one would expect to see the rich and well off paying most of income tax revenues given that, by definition, the rich and well off take most of the income—and most of everything else.