How I Became Sold on Eating the Rich - An Analysis of "Estimating Tax Burdens by Wealth Groups"

I came across this very illuminating research paper on the IRS's SOI working papers page. I know taxes are dull to most, but tis the season and the implications of this paper deserve all of our attention.  

 Aforementioned paper: Estimating Tax Burdens by Wealth Groups  by Akcan Balkir, Emmanuel Saez, Danny Yagan, and Gabriel Zucman. 

In my attempts to make sense of of our tax code and its shortcomings I have found that it is actually really difficult to find resources that cover taxpayers' wealth, income, and tax burden profiles. This has been the most useful paper I have found dissecting all that information thus far, but it is definitely more oriented at analyzing those brackets within the top 10% wealthiest taxpayers rather than comparing them against those outside that group. Even with a cursory glance though it does seem to illustrate that there is a not even a gap but a canyon even among the upper echelons and that the average wealth among them has increased significantly over time (with the top 0.00005% seeing an 81% increase in wealth from 2010-2020, for example). So we know the richest of the rich are really rich, but how much worse off are all of us plebs in comparison? Are our income taxes really progressive?  

To answer that we need to address a couple of issues with the data as it is presented for this paper: 

1. The top 10% brackets are inclusive of the superior bracket - The top 10% figures includes the top 1% which includes the top .01% and so on. While the information provided is still very insightful, it is averaging out vast spans of wealth which makes the bigger picture seem to have more shades of gray than it really does. To get a clear understanding of the specific wealth, income, and tax burden positions for as many groups as possible we'll want to break these apart into exclusive brackets. 

2. The only insight we have to how this compares to lower wealth brackets is an overall average for all taxpayers. Similar to the point above, this average includes those upper wealth brackets outlined in the table. This doesn't give us a very clear understanding of how those upper ranks really compare to everyone else. 

3. Missing relational information - The information in the paper is presented as just straight amounts or volumes. This doesn't provide great context at a glance. For example, it is clear the dollar amount tax burden increases with wealth, but what is that figure as a percentage of their income? What is it as a percent of their wealth? Is there are clear relationship between income and wealth?

Fortunately all of  these issues can be rectified with a little reverse engineering of the data.

Step 1 - Extend averaged amount to get bracket totals

We'll multiply the average wealth and AGI figures by the total tax units for each bracket to get the overall wealth and income for the bracket. Similarly we'll sum up all the specific tax liabilities to get an average effective tax burden for each bracket and multiply that by total tax units to get the total tax revenues generated by each bracket. 

Step 2 - Break out the bottom 90%

From the "All" column, we can deduct the extended values using the numbers from the adjacent top 10% column. Once we have the overall amounts for the bottom 90% we can calculate the averages in the same fashion as the other brackets (column C).

Step 3 - Make the brackets within the top 10% exclusive

The topmost tier of wealth outlined in the pare - the top 0.00005% -  will be the only column that is exclusive from the get go, so we can leave the figures there as is (well, copy them from column T to column K) and work our way backwards. We can deduct our total amounts from step 1 for the exclusive 0.00005% column (T) from the top inclusive 0.0001% column (S)  and average those results to get the figures to produce our new 99.9999-99.99995% column (column K). We'll rinse and repeat all the way down until we've produced our last exclusive column in to top 10% representing the 90-99% bracket. 

Step 4 - Add more relational fields 

I've added a number of additional rows to better contextualize the data. In some cases I have referenced a total population figure of 328.3 million and a total wealth figure of $115 trillion that would be consistent with 2019 which seems to be the timeframe most of the data was matched from.

Here's the link to the table, with columns M-T representing the original data from the paper.

Now the data really starts talking. With this context it is laughable for anyone to try to portray our current tax system as anything other than regressive and exploitative. We now can see that:

• Taxpayers in the bottom 90% pay an average of 8.22% of their wealth in taxes each year, whereas the topmost bracket pays on 1.47%. Worse, this is totally unnecessary. After playing with the numbers a bit I was able to come up with a truly progressive set of rates by wealth that would be revenue neutral and would still reduce the highest tax burden-to-wealth ratio. If the bottom 90% - the most income reliant group of taxpayers outlined - can handle 8.22%, why can't those above them carry such a burden?  

 

• There's a very interesting phenomenon observed here where non-taxpayers have a higher average personal wealth ($155,661.85) than the bottom 90% ($136,656.67). Presumably there are some very large outlying pockets of wealth hiding in there pulling the average up from the poorest of the poor.  

 

• Considering the above fact, I think it is not far-fetched to assume at least an average 2% tax burden for the non-taxpayer segment would likely be feasible with systems oriented around transparency of wealth to pull some of these whales out of the depths of obscurity. This could result in an additional $450 billion in tax revenue or could be used in a revenue neutral scenario to further reduce the tax burdens of other brackets.  

 

• Looking at the full scale of wealth is certainly sobering too. From a financial perspective, we we are essentially nothing in relation to the ultra-rich. It's pretty astounding to see here that even wealthy individuals with a net worth of up to $50.4 million still appear on the null line of the chart when laid out next to the topmost average net worths. You can just make out the subtle change in color on the x axis line there. Tens of millions of dollars of wealth reduced to a miniscule line of blue pixels.  

 

• Juxtaposing the scale of wealth against the total revenues by percentile paints another interesting picture. The combination of regressive taxes and wealth inequality leads to the two lines very nearly intersecting at the upper ranks. The wealth of 1-2 members of theses groups could pay the entire bracket's tax burden.  

 

• Not only do the rich face a proportionately smaller tax burden in relation to their wealth, it should come to little surprise that they also enjoy greater discretion of where their tax dollars go by way of deductible charitable donations. This is not because they are just naturally more generous charitable people, but because they are in a position to be able to afford to make donations to organizations of their choosing despite their tax burden. Amazingly, despite being taxed into oblivion, the bottom 90% still mananges to donate more in proportion to their wealth than the next 5 brackets in the 90-99.998% range (though these donations are a much smaller proportion of their overall tax burden).

 

• Honestly, I used to scoff at "Eat the Rich" and similar slogans. Libertarian ideology had me convinced, as Thomas Sowell so perfectly stated (or at least so I thought at the time): "I have never understood why it is 'greed' to want to keep the money you have earned but not greed to want to take somebody else's money.” The keyword Sowell overlooked in his statment was earned. Etymollogically, "earn" is derived from the PIE root word meaning "to harvest". But a harvest doesn't plant, tend, cut, and clean itself. There is an implication right there, that to truly earn something, you must labor for it. Quite clearly though, there is currently an inverse relationship between labor and earnings or wealth. Not only are the wealthy not wage or pension reliant many are hardly even income reliant. Meanwhile the bottom 90% are almost wholly dependent on wages or pensions and on average must kiss over 26% of those earnings goodbye annually.  

 

Excessive taxation has rendered us much too lean, too frail, too submissive, while the elites have passively grown morbidly obese feasting on capital gained in exchange for those hard-earned fruits of our labor. We don't want someone else's money as Sowell implied - we want the commonwealth our founders faught for. We want the common good to once more be the common will of the people. We don't want to shoulder the burden alone anymore.

It is crucial to remember this one point: few things have historically proven more catalytic to political progress and change than tax resistance. Our tax system is the way it is by design. There is a reason why it is set to drain income, not wealth. It is the same reason that system has become so mind-numbingly convoluted and difficult to navigate: to advance the interests of a powerful few at the detriment and disempowerment of the many.