What an interesting chart this is

0602-income-tax-on_2813468c

The top 1% pay a much larger share of the income tax bill today than they did back when income tax rates on the 1% were much higher.

Looks like lowering rates can indeed increase tax collected…..

20 comments on “What an interesting chart this is

  1. Your conclusion does not follow merely from the chart. If the overall tax take fell, the %age contribution from the highest earners could increase without the amount of tax increase. Probably pendantry but …

  2. Of course, the graph could simply show that whereas the top 1% of earners garnered 10% of income in 1980 – earning on average ten times as much as us plebs – they now grab 30%, earning 30 times as much as the rest of us.

  3. False conclusion I am afraid, i order for this to be true you would need to look at the same cohort over each time period. The top 1% is not a constant, the latest figures for example might now include Bill Gates and Warren Buffet so the total income may have shifted

  4. Arthur
    No, looking at the same cohort would not help, even if they were the same people and John Davis was correct, all it would tell you was that they now earn 30% rather than 10% of all income. Are they earning more because they are working harder? Not avoiding as much tax? (both reasons for reducing the tax rate) or because income distribution has skewed in favour of the wealthy because of a reduction in demand for the services of the middle/poor (neutral with regard to the tax rate) – would they be paying more if the tax rate were higher because this represents a massive rise in the benefits of being located in the UK and being rich?

  5. I am with John Davis here, there is a correlation here, but almost certainly not causation.

    I really worry that the (truly) liberal world spends a lot of time persuading itself it is right and not talking past, rather than engaging the leftist myths (like the 1% thing) on their own turf. Turnover into and out of that 1% (or 10% or whatever) is a vastly important thing that is never considered. Very few people spend many consecutive years in any one category. Obvious exceptions apply to those who have it sewn up at one end through some form of regulatory capture (like lawyers and civil servants) or at the other end, those with a revealed preference for the dole.

  6. I saw a programme once which compared the current %ages across all earning groups. There’s a similar, but out of date chart here (bbc), taken from this article. I particularly like it because it shows the percentages paid by the top 1% / 10% etc against others, and easier to read than the pie charts in the HMRC document.

    A visual of an extremely thin slice (300k earners) mapped to the 24% (older figure) revenue they supply should certainly ram home the risks of losing them and it.

  7. These things also need to show the boundaries between groups, especially to top 10% and top 1%. I think most people would be surprised just how low the cut-offs are.

    For Germany, gross €48,200 puts you in the top 10% of taxpaying workers and €126,000 is needed for 1%.

  8. There’s a similar, but out of date chart here (bbc), taken from this article. I particularly like it…

    I particularly like it because it shows that the country is run by and for the Middle Classes, who enjoy the major benefits of large government – “free” healthcare and schooling, subsidised arts, etc. – without actually having to pay for it.

  9. BIG – great point. Where are those figures from? (Curiosity not skepticism. Sounded too precise for you to have memorized them so thought you may have a source at hand.) Personally I’d be inclined to use three bars – one to show the population quantiles, one for the income distribution and another for the tax distribution.

  10. rv: yes, that’s the point. lower tax rates provide incentives for more economic activity which can lead to higher tax intake despite lower tax rates. Also, it provides less incentives for tax avoidance

    (It’s a mathematical tautology that lower tax rate can only lead to higher total tax if income increases)

  11. “I really worry that the (truly) liberal world spends a lot of time persuading itself it is right and not talking past, rather than engaging the leftist myths”

    This can do great damage – it is a constant surprise to many on the left that there is in fact a substantial manufacturing industry in this country.

    I remember the shock on the face of Labour MP when I mentioned the numbers of people employed making cars *at a profit* for UK car companies – he seemed to think that the UK industry consisted of Rover and “the foreigners”.

  12. Pingback: The 1%, Laffer Curve, and Labor Share of Income | Pine Treeconomics

  13. Hmmm….

    For the USA only: A review of the statistics published by the IRS tells several stories, of which Tim hits upon one.

    First, the top 1% are paying more taxes. Is it attributable to lower rates? Absolutely. Any tax professional will verify that fact. Tax planning (especially for people residing the top 10% or so) is expensive, time-consuming and unpleasant for the taxpayer. Lots of taxpayers will pay a bit more in taxes to avoid it. But when the tax rates become confiscatory, well, there’s a powerful incentive to bite the bullet and engage in serious tax planning.

    Note that not much of the top 1% income comes in the form of wages. It comes in the form of dividends and capital gains. The lowering of rates on capital gains has provided a powerful incentive to sell appreciated assets when it is necessary or convenient to do so, rather than to defer due to the potential tax bill.

    Second, the top 1% pay more of the total bill due to the fact that (a) fewer tax filers actually pay any income tax at all. EIC has actually created a class of tax filers receiving income transfers through the tax system. At present the percentage of tax filers who pay no income tax exceeds 45%, and that demographic has risen dramatically over the past 30 years.

    Remember Romney’s “the 47%” comment? Remember how the Democrats mocked it? Well, go to the IRS stats and you’ll find where he got that number. Lot at what the bottom 50% pays in the way of taxes relative to what the top 1% pays. Now that’s inequality for you.

  14. @Dennis. It is probably true that most of the income of the 1% is from investments rather than labour, but it is still probably true that most of the 1% make most of their income from labour.

  15. The top 1% earn about 13% of the income and pay 30% of the income tax. I think that alone is a good enough argument that they already pay more than their fair share. However a new and better angle has emerged (better in that it gets past the envy filter that corrodes most media reporting – after all few people in the media are in that top 1% and they went to Oxford and everything- ). Is it really sensible to have 30% of your income tax dependent of 350k or so people? Especially as a large proportion of those work in financial services which you are simultaneously trying to exterminate. (Those in the media that do earn over 150k are all on self employed contracts naturally). Every one of those that does quit – and here I declare myself a newly arrived HK resident – will require the tax loss to be made up from somewhere, though obviously not lower spending, heaven forfend.

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