I am indebted to Greg Mankiw for his recent post “The Progressivity of Taxes and Transfers” for two reasons. First, it citied a CBO report that I had not seen and enjoyed reading. Second, his post reports transfers as a percentage of market income, and this is the fifth column of my table.
A current political debate focuses on the “fairness” of federal taxes. Fairness means something different for everybody, but a clear view of a presentation of data should clear up some misunderstandings or data cherry picking on one side of the political aisle or the other.
The income data is broken into quintiles, or fifths of the country’s households. The highest quintile is further divided into smaller groupings. Market income is the sum of labor income, business income, capital gains, capital income, income received in retirement for past services, and other sources of income. Labor income includes in-kind payments such as health insurance.
| 2009 | Market | | Taxes | Effective Tax Rate |
| First Quintile | $7,600 | $22,900 | $0 | -301.3 |
| Second Quintile | 30,100 | 14,800 | 2,200 | -41.9 |
| Third Quintile | 54,200 | 10,400 | 7,700 | -5.0 |
| Fourth Quintile | 86,400 | 7,100 | 15,400 | 9.6 |
| Highest Quintile | 218,800 | 6,000 | 53,400 | 21.7 |
| Breakdown of Highest Quintile | ||||
| 81st-90th | 125,800 | 5,800 | 25,800 | 15.9 |
| 91st-95th | 169,800 | 5,700 | 38,300 | 19.2 |
| 96th-99th | 266,200 | 6,200 | 66,800 | 22.8 |
| Top 1 Percent | 1,219,600 | 9,000 | 356,300 | 28.5 |
Transfer are are cash payments and in-kind benefits from social insurance and other government assistance programs. Taxes include the federal income tax, social insurance taxes, corporate income tax, and excise taxes.
The fifth column, the effective tax rate, is taxes less transfers as a percentage of market income. A negative percentage means that the average household in the quintile receives more in transfers from the government than they pay in taxes.
Mankiw was surprised to learn that, on average, households in the third quintile had a negative effective tax rate. I was most surprised by the lack of market income of the first quintile. The average household in this quintile had market income of $7,600. I would find an explanation of the composition of these households interesting.
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According to the Excel sheet, the transfers column consists of "are cash payments from Social Security, unemployment insurance, Supplemental Security Income, Temporary Assistance for Needy Families (and its predecessor, Aid to Families with Dependent Children), veterans’ programs, workers’ compensation, and state and local government assistance programs. They also include the value of in-kind benefits, such as Supplemental Nutrition Assistance Program vouchers (formerly known as food stamps), school lunches and breakfasts, housing assistance, energy assistance, and benefits provided by Medicare, Medicaid, and the Children’s Health Insurance Program. (The value of health insurance is measured on the basis of the Census Bureau’s estimates of the average cost to the government of providing such insurance.)"
ReplyDeleteI take that to mean that the transfers include local, state, and federal government benefits. But the tax figures are only federal. Wouldn't that distort those numbers?
65% of those $22,900 in transfers are social security and medicare. So my guess would be that quintile has a lot of retirees.