Who pays for government?

[maxparrish]

Another chart from the same study illustrates:

Of course, one "solution" is to create a nation-wide VAT on top of the Income Tax and then, using the extra revenues, "redistribute it" to the same folks you taxed with VAT. Then US 'progressivity' would drop to European levels.

How are you reaching this conclusion while citing a graph showing the opposite? US taxes have a larger progressivity (change in GINI) effect because there is more GINI (inequality) to work with.

First, note that the above chart is for changes in GINI due to redistribution, the original GINI is of pre-tax, pre-transfer inequality.

Second, there is more impact from European redistribution because total taxes/transfers of benefits are larger (and in fact more broad based).

Finally, US taxes are more progressive because there is a larger difference between concentrations of tax incidence (the payers at the top) and concentrations of actual benefits (the takers at the bottom). The Kakwani index is the Concentration coefficient of cash transfers (taxes) – Concentration coefficient of market income, i.e. before taxes and transfers (Gini). This does not measure the total impact of the transfer but the 'progressvity' of the taxs and benefit transfers.

A tax is considered to be progressive when high-income groups face a higher average tax rate than low-income groups (relative progressivity). In some cases, e.g. as regards consumption taxes, high-income groups pay a higher amount of taxes than low-income groups (absolute progressivity) but still face a lower average tax rate. Taxes are then considered as regressive and the Kakwani index becomes negative. Similarly, cash
transfers are considered to be progressive when they account for a larger share of the low income groups’ income. This definition implies that flat cash transfers (e.g. a minimum pension for all) are considered to be progressive. And cash transfer programmes which benefit the rich most in absolute terms (e.g. subsidies for tertiary studies) are still considered as progressive as long as the share of these transfers in household income is lower for high-income than for low income groups. Joumard et al. (2012) provide numerical examples.

A VAT tax is less concentrated and regressive, it charges everyone who consumes anything at the same rate. If the benefits are only for the bottom quintile (e.g. Medicaid), its a more progressive tax. One of the attributes of European nations is that their heavy reliance on national VAT taxes which spreads the tax burden - in other words, if the people want a welfare state they are expected to pay for it (even in Canada, only 33 percent of the people don't pay an income tax compared to 47 percent of the US and yet Canada's' poverty rate is similar to that of the US).

See Page 34 for more detail.

http://www.oecd.org/eco/public-finance/TacklingincomeinequalityTheroleoftaxesandtransfers.pdf

 

[arkirk]

More detail: https://www.cbo.gov/publication/49440

We currently have one of the most progressive tax systems in place in the history of the United States. Is that because that's how the oligarchy wants it?

Your chart ignores the massive transfers to corporations from government. Big corporations get huge tax breaks. If they are "persons" they ought to be considered on your stupid graph. Corporations do not pay for the the resources they remove from the commons. They don't pay for the pollution they create. Romney paid at at 14% rate on his income...all rents. You seem totally blind to the wholesale destruction this system is causing in the world at large, let alone what it does to working people in America.

 

[Togo]

How are you reaching this conclusion while citing a graph showing the opposite? US taxes have a larger progressivity (change in GINI) effect because there is more GINI (inequality) to work with.

No, US taxes are more progressive because there is a larger difference between concentrations of tax incidence (the payers at the top) and concentrations of actual benefits (the takers at the bottom).

Well yes, that's what one group having most of the money means! The people at the top have an awful lot of money, and the people at the bottom do not. This means that US taxes are automatically 'more progressive' because more money is paid by the top to the bottom than in countries where income in more equal. That's how income tax works.

The data supplied shows that income in the US is less equal than elsewhere - are you seriously denying this?

The Kakwani index is the Concentration coefficient of cash transfers (taxes) – Concentration coefficient of market income, i.e. before taxes and transfers (Gini). This does not measure the total impact of the transfer but the 'progressvity' of the taxs and benefit transfers.

It measures the extent to which those at the top pay more and those at the bottom receive more. Since we're talking about income tax, we can see that the more unequal the initial distribution of income, the more 'progressive' an income tax will be. As you say, we know we're not talking about total impact, because on total impact the US is still less equal than most European countries.

Since we know that the US is a less equal society than other western countries, what point are you trying to make by looking solely at an abstract measure of percentage transfer?

 

[Jayjay]

I agree. Which is why the study in the opening post offers a more sensible view. In that, US is nowhere near the most progressive in terms of direct taxes and transfers, though it doesn't factor in indirect taxes and transfers.

People that own a lot of stock or work in defense corporations get a whole lot directly from the government.

As do people who work for government or government contractors: teachers, soldiers, postmen, ...

But that kind of indirect transfers are difficult to quantify.

I'm talking about people who get something and do no work for it.

Yes government is the agency that pays teachers, but they must perform labor.

It is not a reduction of their taxes when they are paid for their labor.

But when somebody owns a lot of stock in some defense contractor then drives the nation to one useless war after another, that is the government just giving people money.

At the expense of the majority.

The point is that it which government expenditures are good or bad is just your personal opinion. If you can't quantify how much money is "just given" to some people, as opposed to other people who might earn it, then it's just hand waving.

Direct taxes transfers are easier to quantify, as are specific indirect taxes like sales tax which can be estimated from statistics of how much money people of different income classes use for consumer products.

 

[Jayjay]

Since we know that the US is a less equal society than other western countries, what point are you trying to make by looking solely at an abstract measure of percentage transfer?

It shows that lack of progressivity of taxation is probably not the reason for the relative inequality in the US compared to its peers, and increasing progressivity further is not necessarily a best solution either.

 

[untermensche]

I agree. Which is why the study in the opening post offers a more sensible view. In that, US is nowhere near the most progressive in terms of direct taxes and transfers, though it doesn't factor in indirect taxes and transfers.

People that own a lot of stock or work in defense corporations get a whole lot directly from the government.

As do people who work for government or government contractors: teachers, soldiers, postmen, ...

But that kind of indirect transfers are difficult to quantify.

I'm talking about people who get something and do no work for it.

Yes government is the agency that pays teachers, but they must perform labor.

It is not a reduction of their taxes when they are paid for their labor.

But when somebody owns a lot of stock in some defense contractor then drives the nation to one useless war after another, that is the government just giving people money.

At the expense of the majority.

The point is that it which government expenditures are good or bad is just your personal opinion. If you can't quantify how much money is "just given" to some people, as opposed to other people who might earn it, then it's just hand waving.

Direct taxes transfers are easier to quantify, as are specific indirect taxes like sales tax which can be estimated from statistics of how much money people of different income classes use for consumer products.

Yes, my opinion is that war profiteering is not the same as paying teachers a salary to perform work.

And what is hardest to subtract is all the basic research paid for by the government that drives the economy.

It helps many people, but it helps some a whole lot more.

 

[Loren Pechtel]

I'd be interested in a reference as to what the authors mean by 'Progressivity', and how they're measuring it. I couldn't find one in the link, because the article is behind a paywall.

I note however, that you're still desperately trying to find a measure that doesn't include income. Since Income taxes are based on income, this seems like quite a strange omission.

Progressivity does include income. It's a measure of how taxes vary vs income. The more progressive the system the higher the % the rich pay vs the poor.

I do agree about wondering how they are measuring it.

 

[Loren Pechtel]

More detail: https://www.cbo.gov/publication/49440

We currently have one of the most progressive tax systems in place in the history of the United States. Is that because that's how the oligarchy wants it?

Your chart ignores the massive transfers to corporations from government. Big corporations get huge tax breaks. If they are "persons" they ought to be considered on your stupid graph. Corporations do not pay for the the resources they remove from the commons. They don't pay for the pollution they create. Romney paid at at 14% rate on his income...all rents. You seem totally blind to the wholesale destruction this system is causing in the world at large, let alone what it does to working people in America.

Individuals do not pay for the resources they remove from the commons. They even less pay for the pollution they create.

 

[Togo]

Since we know that the US is a less equal society than other western countries, what point are you trying to make by looking solely at an abstract measure of percentage transfer?

It shows that lack of progressivity of taxation is probably not the reason for the relative inequality in the US compared to its peers, and increasing progressivity further is not necessarily a best solution either.

Not really.

What you have in the US is a vast difference in the income between rich and poor, akin to that found in 3rd world countries. That means that when you slap an income tax on it, which works on a % on income, you get larger transfers of cash than you would in a country where the income was more equal. That tells you next to nothing about how progressive or otherwise the tax code is. If you swapped the US and UK tax codes around, the US would still have more income inequality and so would still end up with a higher measure of 'progressivity'.

You're probably correct that the core problem in the US is not a faulty tax code but rather severe income inequality. But that doesn't say much about how to fix it, it certainly doesn't support any pronouncements or conclusions about the nature of the US taxation system. It may well be that the best, easiest, cheapest and most efficient mitigation is to cut tax loopholes and make the tax code more progressive. Or it may not.

 

[Togo]

Progressivity does include income.

Yes and no. Progressivity does use income in it's calculation. However, as a measure it doesn't distinguish between progressivity driven by features of the tax system, and progressivity driven by the income inequality that the tax system is acting on.

 

[untermensche]

Progressivity does include income.

Yes and no. Progressivity does use income in it's calculation. However, as a measure it doesn't distinguish between progressivity driven by features of the tax system, and progressivity driven by the income inequality that the tax system is acting on.

Exactly.

If one person takes everything for themselves and leaves nothing for anybody else that one person will be taxed highly.

But of course this is not a good situation or anything to crow about.

 

[maxparrish]

No, US taxes are more progressive because there is a larger difference between concentrations of tax incidence (the payers at the top) and concentrations of actual benefits (the takers at the bottom).

Well yes, that's what one group having most of the money means! The people at the top have an awful lot of money, and the people at the bottom do not. This means that US taxes are automatically 'more progressive' because more money is paid by the top to the bottom than in countries where income in more equal. That's how income tax works.

...It measures the extent to which those at the top pay more and those at the bottom receive more. Since we're talking about income tax, we can see that the more unequal the initial distribution of income, the more 'progressive' an income tax will be. As you say, we know we're not talking about total impact, because on total impact the US is still less equal than most European countries.

Since we know that the US is a less equal society than other western countries, what point are you trying to make by looking solely at an abstract measure of percentage transfer?

Since the op was "Who pays for government", the point is that progressivity of the US tax system suggests "the people at the top" pay for most of it. How much it does or does not reduced inequality is a different question (and one that I find of minimal interest).

I suspect you misunderstood the Kakwani index. The "more unequal distribution of income" does not make an income tax system more progressive to begin with - it is the net difference between (essentially) the gini inequality (concentration) of tax/transfers minus the gini of household income before taxes/transfers. If the tax concentration coefficient were .3 and the household income inequality .2 the net difference is .1. And if in a highly unequal society the TC were .6 and the GINI .5 it would be the same "progressivity".

And the actual impact of the progressivity is:

The redistributive impact of taxes can be expressed in the same way: Concentration coefficient of disposable income – Concentration coefficient of market income plus transfers.TACKLING INCOME

And it is also equal to: Size of taxes * Progressivity of taxes (Kakwani index) where the size of taxes is measured as their share in household disposable income and the Kakwani index is defined as (Concentration coefficient of taxes – Concentration coefficient of market income plus transfers).

http://www.oecd.org/eco/public-finance/TacklingincomeinequalityTheroleoftaxesandtransfers.pdf

TACKLING INCOME INEQUALITY: THE ROLE OF TAXES AND TRANSFERS
34 OECD JOURNAL: ECONOMIC STUDIES – VOLUME 2012 © OECD 2012

Post Edit: I noticed another post from you that either is wrong or at least wrongly stated:

What you have in the US is a vast difference in the income between rich and poor, akin to that found in 3rd world countries. That means that when you slap an income tax on it, which works on a % on income, you get larger transfers of cash than you would in a country where the income was more equal. That tells you next to nothing about how progressive or otherwise the tax code is. If you swapped the US and UK tax codes around, the US would still have more income inequality and so would still end up with a higher measure of 'progressivity'.

Progressivity is NOT a measure of income tax rates (although they are substantially related). They are a measure of the area differences between a two "curves" on a Lorenz graph. Highly unequal concentrations of taxing/transfers and highly unequal distributions of household income can have identical progressiveness to low inequality and low tax concentrations (and vice versa)'

 

[untermensche]

Progressivity is NOT a measure of income tax rates (although they are substantially related). They are a measure of the area differences between a two "curves" on a Lorenz graph. Highly unequal concentrations of taxing/transfers and highly unequal distributions of household income can have identical progressiveness to low inequality and low tax concentrations (and vice versa)'

You are not looking at all transfers.

For example are you looking at the US military protection of oil supplies?

This is direct protection of profits. It spares the oil corporations from having to provide the protection.

Are those profits counted as a government transfer to the stock holders and corporations?

 

[Loren Pechtel]

Progressivity is NOT a measure of income tax rates (although they are substantially related). They are a measure of the area differences between a two "curves" on a Lorenz graph. Highly unequal concentrations of taxing/transfers and highly unequal distributions of household income can have identical progressiveness to low inequality and low tax concentrations (and vice versa)'

You are not looking at all transfers.

For example are you looking at the US military protection of oil supplies?

This is direct protection of profits. It spares the oil corporations from having to provide the protection.

Are those profits counted as a government transfer to the stock holders and corporations?

And you still have not responded to my asking about how individuals deserve protection (police) but companies do not.

 

[Togo]

Well yes, that's what one group having most of the money means! The people at the top have an awful lot of money, and the people at the bottom do not. This means that US taxes are automatically 'more progressive' because more money is paid by the top to the bottom than in countries where income in more equal. That's how income tax works.

...It measures the extent to which those at the top pay more and those at the bottom receive more. Since we're talking about income tax, we can see that the more unequal the initial distribution of income, the more 'progressive' an income tax will be. As you say, we know we're not talking about total impact, because on total impact the US is still less equal than most European countries.

Since we know that the US is a less equal society than other western countries, what point are you trying to make by looking solely at an abstract measure of percentage transfer?

Since the op was "Who pays for government", the point is that progressivity of the US tax system suggests "the people at the top" pay for most of it.

Nothing to do with the progressivity of the tax system. The people at the top pay the majority because they have the majority of the income.

I suspect you misunderstood the Kakwani index. The "more unequal distribution of income" does not make an income tax system more progressive to begin with

Of course it does. Income tax is progressive by design - the more you earn the more you pay, and the more you earn the higher percentage of your income you pay. Thus in a country with very high income inequality, the outcome is more progressive, i.e. more wealth is transferred.

The problem, I suspect, is a confusion between progressive versus regressive tax systems, on the one hand, and the measure of 'progressivity' you dug up, which is a measure of outcomes, not the tax system itself. You talk about the 'progressivity' of the tax system, which doesn't make sense.

- it is the net difference between (essentially) the gini inequality (concentration) of tax/transfers minus the gini of household income before taxes/transfers. If the tax concentration coefficient were .3 and the household income inequality .2 the net difference is .1. And if in a highly unequal society the TC were .6 and the GINI .5 it would be the same "progressivity".

But household income inequality and tax concentration are not independent measures. They're highly correlated. The same tax system would produce different tax concentration coefficients in different countries because tax paid is a function of income.

What you have in the US is a vast difference in the income between rich and poor, akin to that found in 3rd world countries. That means that when you slap an income tax on it, which works on a % on income, you get larger transfers of cash than you would in a country where the income was more equal. That tells you next to nothing about how progressive or otherwise the tax code is. If you swapped the US and UK tax codes around, the US would still have more income inequality and so would still end up with a higher measure of 'progressivity'.

Progressivity is NOT a measure of income tax rates (although they are substantially related). They are a measure of the area differences between a two "curves" on a Lorenz graph. Highly unequal concentrations of taxing/transfers and highly unequal distributions of household income can have identical progressiveness to low inequality and low tax concentrations (and vice versa)'

Agreed. That doesn't address my point though. Maybe we're talking past each other - what specifically is it that you think 'Progressivity' demonstrates in the context of this discussion?

 

[untermensche]

You are not looking at all transfers.

For example are you looking at the US military protection of oil supplies?

This is direct protection of profits. It spares the oil corporations from having to provide the protection.

Are those profits counted as a government transfer to the stock holders and corporations?

And you still have not responded to my asking about how individuals deserve protection (police) but companies do not.

Their property on US soil should be protected by the local authorities.

Their property overseas should also be protected by local authorities.

 

[Loren Pechtel]

And you still have not responded to my asking about how individuals deserve protection (police) but companies do not.

Their property on US soil should be protected by the local authorities.

Their property overseas should also be protected by local authorities.

And so pirates get free reign of the high seas?

 

[untermensche]

Their property on US soil should be protected by the local authorities.

Their property overseas should also be protected by local authorities.

And so pirates get free reign of the high seas?

No, oil corporations can pay for their own protection.

They don't get it free from the US government.

 

[Loren Pechtel]

And so pirates get free reign of the high seas?

No, oil corporations can pay for their own protection.

They don't get it free from the US government.

International law makes it very hard to protect your ships on the high seas.

 

[Jayjay]

Are you suggesting that pirates of the high seas are a major impediment to US business interests?