Visualizing America's Tax Inequality, The Wealthiest 11,000 People, And Why Obama's Campaign Promises Mean 77%-91% Taxes For The Richest

Tyler Durden's picture

Now that healthcare "reform|takeover" has passed, Obama is rightfully shifting his attention on tax "reform|takeover" for the very simple reason that America is getting bankrupter by the day, and at some point even our ever so patient creditors will say 'enough'. We take this opportunity to disclose the massive pain that lies in store for those who are currently benefiting the most from the endless stock market rally, of course assuming the president keeps his #1 campaign promise (which is a vast assumption). As the charts below demonstrate, American society is currently stratified beyond repair. In this vein, the Tax Policy Center calculates, that for a return to economic normalcy, or deficits at a "mere" 2% of GDP, households earnings more than $200/250k would see their tax rates going up to a stunning 91%. If the economic underperformance target is reduced to more palatable deficits at 3% of GDP, then the top earners would be hit with "only" 77% taxes.

A summary of the details:

  • 40% of US households make below $36,000
  • 60% make below $57,000
  • 80% make below $91,750
  • 95% making below $165k
  • 98% making less than $250,000
  • 99.99% make less than $5 million and 0.01% make more than $5 million (with a very special category for those making over $1.5 billion: "Hedge Fund Managers")
  • 1% of society makes 17.3% of the income,
  • The average income in the top 0.01%, or 11,000 households, is $35,473,200, and a minimum of $8,579,000
  • The average income in the the next 99,000 households, or 99.9%-99.99% of the population makes an average $4,699,500, and a minimum of $1,532,400
  • The average income in the next 451,000 households, or 99.5%-99.9% of the population makes and average $1,206,200, and a minimum of $482,400
  • The average income in the next 564,000 households, or 99$-99.5% of the population makes and average $269,800, and a minimum of $126,300
  • ...and so forth.

Here are the charts that capture the stratification of America, and its new "nobility" class, courtesy of Visualizing Economics:

First - the peasants, and the clergy:

Next, the nobility:

And, a little bit more, on those who, unless they manage to stop Obama from following through on his plans, are about to be taxed between 77% and 91%.

Here is the reason why those in the above chart should be very worried. From the Tax Policy Center of the Urban Institute and Brookings Institution:

In August 2009, the Congressional Budget Office (CBO) projected that the federal budget deficit would total $7.1 trillion over the 2010-2019 decade—under current law. That outcome would require the 2001 and 2003 tax cuts to sunset as scheduled in 2011 and Congress to stop “patching” the alternative minimum tax to minimize its bite. If neither of those things happens, CBO says the cumulative deficit over the decade would jump to $11.1 trillion, more than doubling the national debt. Our economy cannot sustain that rate of debt increase. How can we reverse it? This paper poses a simple question: could incremental reforms of the current tax system raise enough revenue to reduce the deficit to an average of 2 percent of GDP over the last five years of the budget window?

Here are Brookings' observations as pertains to both US social strata and Obama's chief campaign promise to not touch taxes on those earning less than $200k (single) and $250K (married):

Raise tax rates proportionately on single taxpayers with income over $200,000 and married couples filing jointly with income over $250,000. This policy would impose tax increases only on those taxpayers targeted by President Obama during the 2008 presidential election for tax increases under the expiration of the 2001 and 2003 tax cuts.

We model a proportional increase in tax rates for taxpayers for whom adjusted gross income minus the standard deduction and one personal exemption (two exemptions for married couples) exceeds the relevant threshold. To meet our revenue target [of 2% deficits of GDP] under current law, the top two tax rates would have to increase more than 40 percent, lifting the top rate to 56.4 percent. Under the administration baseline, the top rates would leap by 160 percent, lifting the top rate to nearly 91 percent. We would need much smaller—but still substantial—tax increases to meet Orszag’s deficit target [of 3% of GDP]. For example, under the administration baseline, the top tax rates would have to more than double, pushing the top tax rate to almost 77 percent. Under current law, the top rate would have to increase to about 43 percent.

We hate to break it to those who are making 1% each and every day in the melt up, but quite soon (assuming Obama doesn't want a revolution on his hands), all the income America's uberwealthy generate, will soon be taxed anywhere between 77% and 91%... And of course, assuming simple math still works in the Obama universe.

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The Person Familiar With The Matter's picture

We will definetely see more taxes with groups like the Center of Budget and Policy Priorities (www.cbpp.org/) talking to legislatures. In a recent article on why states cannot stimulate their economies by cutting taxes the author wrote (the bolding is mine):

"Such proposals are highly unlikely to work. When a state cuts a general tax such as the corporate or individual income tax, the impact on the state economy depends on what the business or the individual does with the money freed up by the tax cut.

  • If a tax cut to a corporation increases its profits, it may distribute those profits as dividends to shareholders who live throughout the country; those funds will not necessarily create additional in-state demand.
  • A corporation will not necessarily use the funds provided by the tax cut to make additional investments in the state in the short term. If there isn’t additional demand for a business’s good or service, the firm might keep the funds in reserve until demand picks up at a later time — by which time it would not need any government inducement to expand.
  • If a tax cut goes to a higher-income person, that person might save most of those extra dollars — invest them in the stock market, for example — so the tax cut would create little or no additional demand within the state."

Well at first I wasn't so sure, but once I saw the "may" and "might" I knew it was a solid argument.

rootless cosmopolitan's picture

This makes sense, although it would sort of obstruct my plan to switch from the 95% to the upper 0.01%. Perhaps, in this case, I should resort to Plan B instead.

 

A Nanny Moose's picture

I have been looking for exactly this information. Thx!

/grin

cocoablini's picture

If I recall, FDR imposed a 70% tax on the rich in the 30's.

It's the only way to repatriate(steal) the money back and get velocity(ie:give it to stupid people to buy crap and lose it.)

The smart people who save are getting their savings depreciated.

The rich(either by being a crook, hoard, inherit or in their words,"do God's Work" squat on a majority of their income and savings.

The middle class get about 75% of their incomes extracted by taxes and expenses.

The wealthy only spend a fraction of that. Bill Gates can't spend it fast enough! I mean, who the hell needs 50 billion dollars...I mean really.

This is all a shame. Those who create and provide benefits to the country should enjoy wealth-but since money doesn not belong to the owner(it belongs to Obama and Tim geithner-it's their dollar-thier shit currency) the thing to do is?

Go get hard assets? Invest in the market? get rid of your wealth as soon as possible and hide that crap in Zurich?

Good luck!

cocoablini's picture

This is post-industrial America.

I suspect we will have a VAT tax and excessive taxes to pay for all the useless Federal and State employees(pensions) plus the debt.

Income taxes will go up. All taxes UP.

Like Europe, they will figure out systems to retain their oligarchy while the sheep and idiotics in government race around trying to pickpocket the citizen and lay a boom on the "rich." the rich are already getting out. They are converting to gold bullion(soros) and acquiring property via MBS, foreclosures and sweetheart deals with the FHA.

This is what happened in Europe-the French Revolution showed the aristocracy how they could die in a heartbeat. So England, Holland and so on created sham Parliaments with sham branches(The Lords? Give me a fracking break...)to give a semblance of citizen control. Not many people own land in europe. the rich own it, they had it already, and rent it to the happy socialist sheep who get free crummy healthcare, bad education, fast trains to work and anti-depressants.

The euro-rich still parade around in large Mercedes, with bodyguards picking up the rent checks, playing the casinos and shagging supermodels.

That's socialism for you. It's neither fish nor foul. Its not Marxism or Capitalism-it's a friggin sham to protect the super rich and keep the under classes supressed in high taxes and "benefits." Or as Max Keiser says, "Euro-feudalism."

MY recommendation? Don't ever vote Dem or GOP again and work as LITTLE as you can get away with. You are a cog in their little GDP machine.

ExistentialSkeptic's picture

I like your little manifesto, cocoablini.  :-)  We just had a teenage exchange student from France living with us for a couple of weeks and she was what you describe: a happy socialist raised in a cheap apartment giddy on her "free" education and hoping to work for Interpol.  She did admit that their taxes are high, but felt that the "free" healthcare was a good balance.

My family went Galt some time ago -- I just couldn't keep feeding the machine, working hard all day to raise our income bracket and end up handing it over to the government.  We've scaled back, and we can do more in a heartbeat when we have to.

I have a lot of talents, but I refuse to use them to feed the machine.

trav7777's picture

This is PRECISELY how I have described socialism to socialists for years trying to get them to understand.

You trade any chance at upward mobility for a reasonably passable lower middle class lifestyle.

And it does nothing but ENTRENCH the aristocracy.

There is NO WAY to get ahead with the taxation of income.  The rich don't have to HAVE income; they have ASSETS and WEALTH.  Those who have are enshrined in perpetuity; those who have not, the same.

pan-the-ist's picture

What makes you think you have a right to upward mobility?  Guess what Trav.  Life isn't fair.  At least your ancestors were smart enough to carve out some social security from the aristocracy for their trouble, now you're whining because you weren't born into the club?

Time to grow up Peter Pan.

Hephasteus's picture

Plus they can use thier wealth to promise genorosity for service. Which is probably why most maids and butlers in england should spend their free time after retirement shitting and pissing on the graves of those they served.

TSL's picture

Great Post Tyler.

I have just written on the subject myself. I think this income and welath disparity issue reaches much further still. I wrote the following summary:

Considering the contribution the U.S. consumer makes toward both the domestic economy and other major developed and developing economies it is essential to understand who he really is. What I have tried to demonstrate is that there is no one “consumer”. At the very least there are two, the few very wealthy and all others. The small group of very wealthy, the outliers, have a black-swan type impact on many aspects of the economy and for whom causation and outcome must be viewed very differently than when looking at the average. And who is average anyway? On average, the typical human being has one breast and one testicle! By looking at aggregates one gets a drastically deformed picture and one has to dig further:

- In aggregate, the US consumer is extremely wealthy and holds considerable net worth but in fact the majority of households have very little accumulated wealth.

-  The “wealthy” and the “majority” have radically different savings behaviors. During periods of rising asset prices it has been the top wealth earners that have had a negative savings rate. The majority has actually been increasing its pace of savings.

- The current account deficit is a natural phenomenon of wealth disparity that can be in part explained by the negative savings rate of the top earners. It is probably not a sign of national excessive consumption. 

- The large share of discretionary spending from the top percentiles and their lower sensitivity to moderate economic downturns is supportive for aggregate consumption trends and does not necessarily reflect the consumption trend of the majority.

- Assets are very unevenly distributed; stocks and bonds ownership in particular, is extremely concentrated amongst the wealthiest who benefit from a diversified portfolio and who are therefore less exposed to any individual asset class.


I personally believe that the current situation offers a good investment opportunity that I shall be implementing for myself as you receive this letter. I am writing this letter to share my thoughts and provoke a discussion; it is only if this exercise naturally leads me to make a trade that I will share that trade with you. The investment ideas I share in this letter are based on the conviction that people believe they know more than they actually do. I always start with the view that I know close to nothing, which is always true, but that attractive risk/reward opportunities might lie here and there when behavioral biases or valuations reach extremes. At least the odds are on my side.

Those who have invested in companies that benefited from the rising trend in income disparity have witnessed unparalleled growth, exceptional fundamentals, and have also enjoyed exceptional outperformance since 1995.  The turn in events of the financial crisis has however put, at the very least, a pause on this trade. No fundamentals are ever written in stone. There is no “free lunch” as we have learnt the hard way.  There are a number of fundamentals that may change the trend in disparity we have witnessed for so long. I believe that we are seeing some of these changes slowly taking place.

I am thinking of the change in the tax system, a red hot subject these days, which is a significant threat to the current state of income disparity. It is extremely difficult if not impossible to determine to what extent and who shall be impacted by a rise in taxation. Will it be the middle class as usual or shall it be the wealthiest Americans who in practice enjoy an average tax rate of 15%, nearly half the rate of the middle class. It is not clear how the threats of capital mobility, outsourcing, and fiscal competition will interact with the apparent will of governments to finance their fiscal deficits by raising tax rates.

Income disparity has its limits, it must be at some point elastic, and although “consuming” has been genetically and forcefully embedded in our culture, there comes a time when the acceptance of this disparity by the general public reaches its limit. To add insult to injury, the mirage of somehow participating in this wealth creation has abruptly come to an end with the fall in housing prices that was artificially fueled by record low long term rates. The middle class has sustained it’s spending by leveraging its balance sheet on the back of rising asset prices. Many of these households will not be able to borrow against their homes for years because their mortgages are higher than the value of their homes.     The “I will make it also” factor is losing its appeal and its fairness is questioned. I expect the political involvement to grow and that the pressure will be mounting for those who have most benefited in the past to now pay the price for finding a new equilibrium.

Currently, the upper 5 percentile of tax units pay about 60.6% of income taxes. The upper 10 percentile pay 71.2% of income taxes. The middle class, which is strangely not considered as the 40-60 percentile but more like the 6-25 percentile (income between USD 75’000 and USD 200’000) pay 30.8% of taxes and represent 19% of the tax unit population. It has historically been this unfortunate group that bears the fiscal adjustment, as the upper 5 percentile may have the means to consider a move to a more hospitable taxation environment, which would put in peril over 60% of income tax receipts. A large majority of the bottom 50 percentile of tax units have zero federal income tax liability to speak of, so this group is almost not relevant, as a group, they only represent a share of 13.4% of total income taxes paid. Unless you wish to create social havoc, generally not a political aspiration, you avoid infuriating that group. But this time might be different, “One Man, One Vote”. The risk is to infuriate the very large majority and cause a social breakdown. It appears that there is no other solution than to increase the tax rate of the most wealthy. An increase in the tax rate imposed to the top 5 percentile has an impact on over half of income taxes collected. Talk about a small change, which impacts very few voters but makes a big difference to the fiscal situation.

The full text can be found under: www.thestainesletter.com

I am sure we shall hear a lot more about this subbject of wealth disparity in the coming years...

Best,

 

Quantum Nucleonics's picture

The elasticity of taxable income (aka the Laffer Curve) precludes the possibility of EVER raising taxes on the "rich" enough to pay for the current spending orgy. (Spending during the Bush years being mearly a trist by comparison.)  I'd wager that current tax rates would generate more revenue than a 90% tax.  People will simply defer or shelter income, and if they can't they will simply stop working and investing, which then feeds back to employment and the income of the other 99%.

Sudden Debt's picture

You Americans better buy a big pot of vaseline EACH! :)

Neophiliac's picture

The simple upshot of this paper is that there is simply no way to drastically reduce the deficit by taxing the wealthy alone. That's not terribly new. So yeah, the Obama pledge will be broken. My personal forecast is that, in addition to the scheduled expiration of Bush's tax cuts, we will (hopefully) see some sort of a carbon tax in Obama's first term. That's peanuts though. The real work will be done in the second term - when we will probably see further income tax increases and maybe a VAT. I'd also bet that the bulk of income tax increases will come mostly from eliminating deductions and credits and not via an increase in marginal tax rates.  Increases in marginal rates attract too much public attention, while deductions and credits are too arcane for Joe the Plumber to keep track of - and yet cost a huge amount in revenue.

ExistentialSkeptic's picture

A carbon tax??? Are you serious???

Puh-lease!

swamp's picture

A lot of class warfare and socialist thinking expressed here.

Taxes at 91% are okay — if it's someone else, and if that someone else makes more. 

No wonder the place is melting down. Grab and go.

 

litoralkey's picture

OBAMA ADMINISTRATION PUBLISHES PLANS TO LOOT AMERICANS' RETIREMENT FUNDS

http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23512&AgencyId...

 

The EBSA Proposed Rules is undisguised looting of employer and employee alike.

In a proposal entitled EBSA Proposed Rules, the Labor and Treasury departments are requesting information from employers, employees, financial institutions and others regarding Retirement Accounts. They "are asking for public input about the use of annuities in defined-contribution plans, such as 401(k)s. . . . including the advantages and disadvantages of distributing benefits as a lifetime stream of income . . ."

http://www.capitalismmagazine.com/politics/social-security/5709-Government-Plans-Loot-Your-Retirement-Account.html

 

Carl Marks's picture

What this society needs is more rich people. Eliminate the parasites and watch those charts shift.

I think we have more machinery of government than is necessary, too many parasites living on the labour of the industrious.

-Thomas Jefferson

Bruce Krasting's picture

I am the poster child for the AMT tax. I am retired. Have no earned income and have investment income. I have been AMT bound for a decade and boy does it suck.

The current rule on AMT is stupid. Basically if you were in it last year you are in it this year. But if you were not last year, you are excluded this year. That is dumb because there are people who should be in this but are now excluded. It is a very unfair tax.

In an effort to raise taxes they may change this so EVERYONE would be in the AMT tax. This would hurt your incomes if you have a family income greater than $100k.

What happens in AMT? you lose your deductions, so your net tax is higher.

What deductions? All except the mortgage deduction. No more charity. You can't deduct property taxes paid to a state. you cant deduct State income taxes you pay, you lose the child care deduction, No deductions for uninsured meadical expenses. No deductions.

It gets worse. You know those tax credits they are handing out to fix your windows or to install a solar system? You can't take advantage of these either.

AMT comes close to a flat tax. Right now it is imposed on a very small segment of the population. When and if it is expanded it will ruin your financial plans. But the good news is that you will not have to worry every April 15th if you have overstated your deductions and will be subject to an audit. The incentive to cheat is gone. I could invent a million deductions, but they can't be used so I don't. But I also do not make those charitable controbutions or any of ther other things the tax code encourages you to do.

One thing that can be said about the AMT. It discourages having a family, it discourages owning a home. Therefore it is the dumbest thing we could do. That probably means that that is exactly what will happen.

Come join me in AMT land. You will hate it too.

 

 

 

trav7777's picture

The commentary here is mfing laughable.

The vast majority of these rich are NOT productive.  They just feed off of the gov't trough.  To call them "productive" and wealth-generating is asinine.  They are just better-connected leechfucks than those on the left of the curve.

There are a very few productive who "deserve" their income, but a hedge fund manager?  What "wealth" are these wall street fucks creating?  They're merely taking wealth from other people and putting it into their own pockets and then calling it industriousness.

The right side of the curve is stilted with crooked and incompetent executives and wall steet hucksters.  If you go down a list of billionaires in the world you see a list loaded with corruption and former heads of State and in some cases, like Bhutto, Arafat, Hariri, etc., children of "public servants" who are now legacy billionaires due to the death of their corrupt parent.

The rich are increasingly parasitic, not productive.  As for the solution, it is NOT government, which is and always has been an ENABLER of these parasites.  The solution is populist labor bargaining power.  THAT is what created the middle class.  Gov't policies were not responsible for sane executive pay multiples; in fact it has been government policies enacted by/for the elites that have caused the opposite.

At this point, the elites have a complete stranglehold on ALL levers of power - gov't, unions, interlocking executive directorates.  They and their cronies are on every board and in every decisionmaking position.  I fear that revolution is the only option at this point.

If the government taxes more, that just makes more money available for the right lobbyist to help the right Senator steer into the right hands.  The richest people I know are sucking on the gov't tit, war profiteers (also on interlocking directorates of various large corporations), lobbyists, and otherwise connected with the gov't.  Look at the banking industry; it would not EXIST but/for gov't largess.  And NOW they are going to jack the taxes up and we're supposed to believe, what...reverse this largess?  Give me a break.  It's never gone that way.

In each and every case, the gov't program to do anything becomes an excuse for money to pass from a crony to a lobbyist to a Congressman who appropriates the public monies back to the crony.

frank's picture

"The solution is populist labor bargaining power.  THAT is what created the middle class."

populist labor bargaining power such as unionized workers in greece, california, etc?

gabeh73's picture

 

Payroll taxes have grown from less than 9% of the government revenues to almost 40% in the last 40 years. Payroll taxes steal almost as much from the people as income taxes and the growth rates are far greater.

 

<a href="http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue....">Federal Revenue History</a>

 

NEO-cons love Reagan and Greenspan who doubled payroll tax rates with their bipartisian committee. The growth of the payroll tax is a blatant attack on the working poor.

 

I am not in favor of "progressive" taxation, but the theory behind progressive taxation(versus regressive taxation) is aimed at values that are difficult to argue against. Either you believe the rich should pay more in taxes as a percent of income or you don't...not many people change their mind on that.

 

Does anyone else get annoyed at Republicans who claim that "rich people pay all the taxes" while pretending that payroll taxes don't even exist?

tom's picture

Actually, Obama hasn't really made much difference economically. The Republicans were also eager for a second stimulus, the difference would have been only one of scale. Considering how much of Obama's stimulus was supply-side tax cuts and rebates, I'd say he has been pretty close to the center economically.

The real problem is that the "me" generation believes it can have its cake and eat it too. Solid majorities elect politicians who promise to provide expensive services, and then solid majorities turn around and elect politicians who promise they won't have to pay the taxes. The Republican revanche coming this autumn is really all about American voters carrying on their fiscal irresponsibility as long as they can.

How long is that? I don't know. The US has an incredible store of trust. Its capacity to sell debt probably outstrips the rest of the world combined, and especially in times of crisis. It's hard to imagine bond markets rejecting Treasuries and turning to ... what?

But it certainly looks like most people are intent on finding out, however long it takes.

jules from aus's picture

i come up with two choices...

simply admit you over-spent as a country and say 'bad luck' to a generation expecting welfare and medicare, and flush those people down history's toilet, or

open the floodgates, and let every friggin wanna be american dreamer into the country on the basis they agree to work cheaper than the chinese do, as a last ditch attempt to increase tax revenues to pay for those who you would prefer to not flush down history's toilet, because they, as they swirl in the vortex of irrelevance, might get more than a shot or two off, before slipping into a forgotten obscurity...

 

as usual

good luck