Two days ago I discovered a recent paper by the Tax Foundation, and so far it's the only example I've found that categorizes the total federal tax burden by quintile (households grouped by income level). Definitely take the time to read it all the way through; all I'm doing in this post is summarizing a few of the points.
The reason this was an important find for me is its value as an objective tool for getting beyond either side's political dogma when discussing the effect of federal taxes on the various income groups. For example, a typical argument from the right talks about "the progressivity of income taxes," and the typical response from the left is "you're leaving out the regressive burden of payroll taxes." This paper sorts it all out, and compares the results across the household income quintiles.
Again, here's the paper:
Who Pays Taxes and Who Receives Government Spending? An Analysis of Federal, State and Local Tax and Spending Distributions, 1991-2004, by Andrew Chamberlain and Gerald Prante.
Be sure to read the whole thing, if you'd rather not outsource your thought process on tax policy to politicians or ideologues.
I took the liberty of charting just a few key portions of the paper; I also limited these charts to federal taxes, even though the Tax Foundation also showed the effects of state and local taxes throughout.
The first two charts below confirm two things: (1) The cut in income tax rates resulted in every quintile paying a smaller percentage in total tax, not just income tax; and (2) The top quintile is still paying more than half of all taxes, not just income tax—and the system in total is still as steeply progressive as before.
The next chart below shows each quintile's share of "comprehensive" income (cash income, plus income from non-cash sources such as capital gains), and each one's share of federal taxes. It confirms what might come as a surprise to some: Taxation is more progressive than income across quintiles.
The last two charts I picked show the share of federal spending each quintile receives, followed by the net difference between government spending received and taxes paid. It reminded me to look not just at who pays the taxes, but also at who receives the spending, whenever I'm thinking about the income redistribution question. Not only do we tax more heavily away from the higher income groups, we also spend more heavily towards the lower income groups.
Effective federal tax rates are down for every quintile. But in spite of that: total (real) federal tax receipts in the most recent twelve months hit an all-time high; the system in total is still as progressive as it was before; and the budget is headed for balance in mid-2008. It escapes me how anyone can still think the system has deteriorated since the tax cuts, given all that. (And if the only remaining argument is that the debt went up... well, let's just say I have no patience for that excuse to raise taxes, as I've been explaining for over two years here.)
Looks to me like "Tax cuts for the taxpayers" is working extremely well, thank you. If it ain't broke, why fix it?