Tax Reform: What’s Fair?

How much should various income groups pay in federal taxes? How much federal revenue would be generated by higher rates on the wealthy?

Forget “nominal” rates. What matters are “effective” tax rates — what people actually pay.

According to the CBO, in 2013, the last year for which detailed data is available, the average before-tax annual income of the top 1% was $1.5 million. With their 34% federal effective tax rate, their after-tax income was $1.0 million.

Those in the 96-99 percentiles averaged $327,000 in pre-tax income. Their rate was 26%. So their after-tax income was $240,000.

The 91-95 percentiles averaged $200,000. With an effective tax rate of 23%, their average after-tax income was $155,000.

For the sake of argument, consider the impact of a graduated tax scheme that resulted in those income groups paying 60%, 45%, and 40% respectively.

That would leave them with after-tax incomes of $628,000, $180,000, and $120,000 — substantial to say the least.

With their same incomes, the increase in federal revenue would total one trillion dollars.

That would be enough to hire 32 million full-time workers at $15 per hour.

Just saying.

What tax rates would you consider fair? Bear in mind the total local, state, and federal tax burdens as reported in the graphic.

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