Sunday, July 15, 2007

Fair Taxes?

The federal tax system is a very confusing hodgepodge: the income tax has different rates for labor and capital income, and has all sorts of deductions and credits (giving tax breaks appears to be the preferred way of making social policy these days); for many people payroll taxes (social security and medicare contributions) are larger than income taxes; and corporations pay some taxes too, the burden of which ultimately falls on their owners and customers. The Congressional Budget Office (CBO) has performed a very useful service in calculating the effective tax burden faced by people at different places in the income distribution. In the NY Times, Greg Mankiw writes up the CBO's study. He writes:
The C.B.O.’s most recent calculations of federal tax rates show a highly progressive system. (The numbers are based on 2004 data, but the tax code has not changed much since then.) The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.
He goes on to say that "Fairness is not an economic concept. If you want to talk fairness, you have to leave the department of economics and head over to philosophy." Mankiw discusses the fairness of the tax code in terms of the thinking of John Rawls and Robert Nozick, though Brad de Long argues that he mischaracterizes them.


Post a Comment

<< Home