Covered at Reason 24/7: Federal Revenue Suffers From Reliance on Small Group of High-Income Earners


Reason 24/7

The "one percent" get a lot of blame from certain sectors, and it turns out that they're also responsible for the federal government's revenue issues, too. Those bastards. Yep, it seems that as top income-earners have taken on the burden of paying an ever-growing share of income taxes, the take from those taxes has come to rise and fall based on the fortunes of that one percent. And top earners tend to have extremely volatile income, by comparison to salaried and hourly workers. That might mean soaring tax revenues when the economy does well, but it also means serious belt-tightening when business is bad.

From the Wall Street Journal:

What is shocking is the degree to which federal revenues have underperformed even for an underperforming economy; revenues have dropped by 2.7% of GDP since 2007.

Why? A more progressive tax code now leverages the negative impact of slow economic growth. The share of all individual income taxes paid by the top 1% has risen to 41.8% in 2008 from 17.4% in 1980—but almost two-thirds of the income from the top 1% comes from nonwage income, including capital gains, dividends and proprietor's profits.

Individual income taxes as well as corporate taxes are now far more rooted in the shifting sands of volatile business income and capital profits rather than in the terra firma of wage income that stabilizes payroll taxes. From 1960 to 2000, payroll taxes were never lower than in the previous year, individual income taxes dipped only twice, and corporate taxes dropped 11 times. Since 2000, individual income and corporate tax revenues dropped five times, while payroll taxes fell twice. Not only do revenues from individual tax returns drop more often now. They fall more severely, with recent collapses of 14%-20% versus the 3%-5% range before 2000.

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