Over the last 30 years or so, approximately $2.3 Trillion has been collected through the Social Insurance payroll taxes in excess of what was needed for outlays under those programs during that same period.
Now the Republicans (and a few remnant Democrats) are proposing to balance our national budget on the back of those programs, with deep cuts to those Social Insurance programs and other programs (like Medicaid) disproportionately impacting the elderly and middle and lower income brackets.
They justify this in part by claiming that the $2.3 Trillion is not really there, as if the Trust Funds and Intergovernmental Debt that they represent are meaningless.
One of the many flaws in that argument is that the special method by which that money was collected carries with it special obligations because if it had been collected in other ways, different people would have paid a lot more of it.
By collecting that revenue (currently about $2.3 Trillion over what was needed for outlay for those programs) through the regressive Social Insurance payroll taxes, the Top Income Brackets shifted roughly $ 1 Trillion in taxes onto the middle* and lower income brackets, while at the same time demanding that their income tax rates be cut. (Much like they are proposing to do now.) Roughly 80% of that shift was taxes avoided by the Top 1%.
If that federal revenue had been raised through the current Federal Income Tax, roughly $2.0 Trillion of that $2.3 Trillion would have come from the top 20% (according to their tax liability share for Federal Income Tax.)
Of the $2 Trillion that would have been paid by the Top 20%, $1.67 Trillion would have been paid by the Top 10%; $1.4 Trillion of it by the Top 5%; and $ 900 Billion would have been paid by the Top 1%.
Instead, by collecting that money through Social Insurance Payroll Tax, the the Top 20%, unburdened themselves of at least $ 1 Trillion in taxes (according to their tax liabilit share for Social Insurance Taxes) essentially all of which went to the Top 10% and essentiall all of that went to the Top 5% .
So of that $ 1 Trillion, the Top 4% skipped out on about $200 Billion and The Top 1% evaded about $800 Billion in federal taxes. (So roughly 80% of the benefit from this approach went to the Top 1%)
Of course, that's exactly how it's supposed to work. We're supposed to go to war with those earning $250,000 per year, while those earning $250 Million walk away with all the booty.
And that's based on the 2006 income tax rates. If we used the various higher income tax rates in effect between 1980 and today, that picture would look even worse.
You can look at the Share of Tax Liabilites data below and recognize pretty quickly where those taxes got shifted.
My guess is that if you looked at your own state and local tax incidence studies, you would also find that those taxes have been shifting as well, with the increases in effective overall rates on the middle class and upper middle class climbing much, much faster than the effective rates for the wealthy.
And now, now after 30 years of collecting "Social Insurance" payroll taxes for Medicare and Social Security and shifting an increased load of the taxes down on the people who will most need those programs, they tell us they're going to cut gut Medicare and Social Security and Medicaid (that pays for over half of all nursing home care)?
If they think they're going to get away with that, they're nuts.
What's more, they're wrong.
For Federal Income Tax and Federal Social Insurance Taxes (those taken out of your payroll) the effective tax rate (dividing taxes by comprehensive household income) and tax liablity shares for 2006 are quite revealing:
Effecitve Tax Rate Distribution by Income Category
Fed. Income Tax % Payroll Tax %
Lowest 20% -6.6 8.5
Second 20% -0.8 9.2
Third 20% 3.0 9.4
Fourth 20% 6.0 9.6
Highest 20% 14.1 5.8
Top 10% 16.0 4.6
Top 5% 17.5 3.4
Top 1% 19.0 1.6
Share of Tax Liabilities
Fed. Income Tax % Payroll Tax %
Lowest 20% -2.8 4.4
Second 20% -0.8 10.3
Third 20% 4.4 16.6
Fourth 20% 12.9 25.0
Highest 20% 86.3 43.5
Top 10% 72.8 25.7
Top 5% 60.9 14.5
Top 1% 39.1 4.0
Income (Average Pretax Income)
Lowest 20% $ 17,200
Second 20% $ 39,400
Third 20% $ 60,700
Fourth 20% $ 89,500
Highest 20% $248,000
Top 10% $ 366,400
Top 5% $ 564,200
Top 1% $1,743,700
*I have adopted for use in this post the currently popular definition of middle as that portion below what you are defining as 'rich'. In previous discussions that defined "middle" to include the 'bottom' 98%. I am using the much more conservative "bottom 90%".
Historical Data:
PDF: Historical Effective Federal Tax Rates:1979 to 2006April 2009
CBO Web Page: Data on the Distribution of Federal Taxes and Household IncomeApril 2009
The Long-Term Budget OutlookJune 2010
UPDATE 1 (4.17.11) Additional Sources of Data Used
THE 2010 ANNUAL REPORT OF THE BOARD OFTRUSTEES OF THE FEDERAL OLD-AGE AND SURVIVORSINSURANCE AND FEDERAL DISABILITY INSURANCETRUST FUNDS
Congressional Budget Office The Budget and Economic Outlook: Fiscal Years 2011 to 2021 Table C-2, pg 142/193 Current Publicly Held Debt, Debt from Government Accounts, Net Debt after Offset of Financial Assets
UPDATE # 2 (4.18.11)
Next in the Series:
The Lie About Who Pays America's Taxes
Published April 18,2011