Sunday, October 26, 2008

More data on tax policies

Above is yet another graph, using data from the same source - a simple one just showing the average tax rate in each income bracket: the bottom 20% of the population, the next 20%, and so on, up to the top 0.1%. The famous "Joe the plumber" is just at the around the 95% percentile - at the top end of that long, long range (from about the 40 percentile mark to the 90 percentile mark, $40k/yr to about $170k/yr) where the tax policies of the two candidates are pretty much the same. Or if you prefer, at the bottom of that long range (from $250k/yr to $2,800k/yr and up), where the policies are different.

I find it exceedingly strange that there's so much rhetoric about very small differences (eg for Joe the plumber's tax rate) and so little discussion about the fairly large differences in tax rates for the top end of the range. The idea that tax credits are socialist is just wacky - these have been pushed by conservatives for decades now as an alternative to heavier-weight social programs, and in fact McCain's health care plan is based on tax credits. And both plans are clearly progressive in the sense that higher incomes pay higher tax rates - the difference is only in degree, not kind.

Even if you accept the claim that the very top of the scale for tax rates is important, the difference in top tax rate is also not especially large in a global sense - in particular moving from 29-38% doesn't turn the US from a free-market bastion to a socialistic Sweden wanna-be. In act, it doesn't dramatically change the ranking of the US for top personal income tax rate. Look at this chart (based on 2005 data) from Wikipedia, and imagine moving the top US bracket from 28% or so to 38% or so:

Or if you prefer here are some selected values from the data tables on the WP page that I sliced out and graphed myself against the Obama and McCain proposals. It's clearly a difference...but it's just as clearly not a switch from capitalism to Marxism.

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