How much income do America’s households take in? How much do they have left after taxes? Do federal taxes leave the nation less or more unequal?
Questions don’t get much more basic than these. Or more complicated either.
How, for instance, do we define income? Everyone agrees, of course, that anything anyone collects from a paycheck should count as income. As should any interest collected from a bank account or any profits from the sale of an asset.
But what about the money an employer shells out to cover an employee’s health insurance premiums? Or contributes into an employee’s 401(k)? Should these dollars be counted as income for the employee?
Calculating how much taxes people pay can pose similar puzzlers. How do we treat the taxes corporations pay on their income? Who in the end bears that burden? Shareholders? Consumers?
These sorts of questions can carry a political edge. One example: Conservatives regularly dismiss stats on inequality that researchers draw from the income people report on their tax returns. These stats, their argument goes, overstate the income share of the rich because they don’t take into account the value of the government benefits — like food stamps — that the poor collect.
Analysts at the Congressional Budget Office, the nonpartisan research unit of the federal legislative branch, have heard this argument. Some years ago, they began producing reports that address it — by expanding how we define income collected and taxes paid.
Last week, the CBO released the latest report in this series, and conservatives who consider America’s affluent the victims of an oppressive, tax-hungry federal government have already begun scouring the CBO’s new study for data that make their case. They’ve found some.
In 2011, the new CBO numbers show, America’s top 1 percent took in 14.6 percent of all income and paid 24 percent of all federal taxes.
So should we now all be feeling sorry for America’s most affluent? Has the nation done them wrong? Do the latest CBO numbers back the case for trimming taxes on America’s most awesomely affluent?
Hardly. The new CBO study actually reinforces what most Americans already suspect: In modern times, things have never been better for America’s wealthiest. They sit comfortably atop a staggeringly unequal nation.
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And that inequality stands out starkly even when researchers make definitional choices that tend to deflate the income share — before and after taxes — of the rich and inflate the income share of everyone else.
In its latest Distribution of Household Income and Federal Taxes report, the CBO has included within the income of poor and middle class Americans not just wages, not just Social Security checks, but nearly every possible benefit that low- and middle-income Americans receive from government or their employers.
The new CBO report, as its authors acknowledge, “strives to measure income as broadly as possible and thus includes in income some items that people may not usually consider to be part of income.”
Employer-paid health insurance premiums? In this new CBO study, they count as income for the working families that receive them.
The employer share of payroll taxes for Social Security, Medicare, and federal unemployment insurance? That counts in the CBO tally, too — as well as the benefits lower-income households receive from social safety net programs ranging from food stamps to free school lunches.
Meanwhile, on the tax side, the CBO makes the assumption that the dollars corporations annually pay in taxes on their profits amount to a tax on rich people, since rich people own the bulk of corporate assets. In the CBO breakdown, 75 percent of corporate taxes paid gets counted as taxes paid by America’s most affluent.
The sum total of all these definitional choices? Lower-income people, under the CBO lens, end up looking richer than they do on the income tax returns they file and higher-income people end up looking poorer.
But inequality, all the same, keeps getting worse, even after all the CBO adjustments that maximize the financial well-being of the poor and minimize that well-being for the rich.
How much worse? Between 1979 and 2011, the CBO numbers show, the after-tax and inflation-adjusted income of America’s top 1 percent tripled, rising 200 percent to an average $1,453,100.
This hefty increase for the nation’s top 1 percent ran over four times the after-tax and inflation-adjusted income increase that America’s poorest fifth of households realized between 1979 and 2011 and five times the income increase that went to Americans in the middle three-fifths of the income distribution.
In other words, as the Washington Post’s Philip Bump notes, we shouldn’t be surprised “that the top 1 percent pay an inordinate amount of overall taxes.” These rich, he notes, “also make an inordinate amount of the income.”