Taxation in America - What is it Telling Us About Income Distribution and Tax Fairness?

The Internal Revenue Service has recently released the latest edition of its Individual Income Tax Shares brochure for 2015.  This publication provides us with statistics on adjusted gross income (AGI) distribution and income tax by cumulative percentiles of returns, giving us an accurate sense of wealth distribution in America and how it has changed over the past decade.  Let's dive in.

For the 2015 tax year, nondependent taxpayers filed a total of 141,204,625 million individual income tax returns, up 1.2 percent on a year-over-year basis as shown here:

In total, adjusted gross income reached $10.14 trillion in 2015, an increase of 4.5 percent on a year-over-year basis and total individual income tax paid rose by 5.8 percent to $1.45 trillion.  The average tax rate for all individual returns filed for the 2015 tax year was 14.34 percent, the highest over the past decade as shown here:

Let's start by looking at the top half of earners.  For the 2015 tax year, the median adjusted gross income was $39,275; these taxpayers accounted for 88.7 percent of total adjusted gross income and paid 97.2 percent of total individual income tax compared to 11.3 percent an 2.8 percent for the bottom 50 percent of returns.  Here is a graphic showing the percentage of total income tax revenue and adjusted gross income varies with various percentiles of adjusted growth income thresholds for 2015:

    

Here is a graphic showing how the adjusted gross income threshold for the top 50 percent of returns has varied over the decade between 2006 and 2015:

As you can see, the Great Recession had a very significant impact on the gross income threshold for the top half of earners, dropping from $22,320 in 2006 to a low of $20,234 in 2011 and back up to $21,663 in 2015 (in constant dollars).

Now, let's look at the one percent and better.  The top 1 percent of tax returns had an adjusted gross income threshold of $480,930 or more and accounted for 20.7 percent of total adjusted gross income and paid 39 percent of total income tax paid by American individuals.  Here is a graphic showing how the adjusted gross income threshold for the top 1 percent of tax returns has varied over the past decade along with a comparison of the thresholds for the top 2, 5 and 10 percent for comparison:

The average adjusted gross income for all individuals in the top 1 percent was $1,483,596, up from a low of $983,734 in 2009 but still lower than the decade peak of $1,485,826 reached in 2007 just as the Great Recession was born.

Let's move to the highest of the highs, the very top of the income heap. Here is a table showing the adjusted growth income threshold history for the top 0.001, 0.01, 0.1, 1, 2, 3 and 4 percentiles (from left to right) of returns:

The top 0.001 percent had an adjusted gross income of $59.38 million or more, up 4.2 percent on a year-over-year basis.  While this seems very high to pretty much all of us, in fact, it is down from its peak of $62.995 million in the 2007 tax year as shown on this graphic:

With total adjusted gross income of $214.6 billion, these individuals accounted for 2.12 percent of total adjusted gross income from all Americans and 3.53 percent of total individual income tax, down from 3.62 percent on a year-over-year basis.  The average adjusted gross income for these lofty earners was $152.0 million compared to an average of $71,829 for all tax returns.  What is particularly interesting about the 0.001 percent, is that their average tax rates are significantly lower than all percentiles from 0.01 percent to 3 percent as shown here:

You will notice that the lower average income tax for the top 0.001 percentile has been lower than their somewhat less wealthy peers for at least the last decade.

Lastly, here is a graphic showing the percentage of total adjusted growth income and total individual income tax paid for the top 1 percent and better:

When looking at tax rates, in 2017, the top 0.001 percent paid an average of 23.93 percent compared to 27.1 percent for the top 1 percent, 23.68 percent for the top 5 percent, 21.37 percent for the top 10 percent and 15.71 percent for the top 50 percent.

While politicians love to tout the advantages of their "tax plan of the day", this data clearly shows us that the very highest of American earners have a significant tax advantage, largely because the current tax code favours capital gains over earned income, a situation that Washington is highly unlikely to change any time soon.  This graph also shows how the tax system has treated one part of America preferentially over another:

In 1950, Washington's revenue from corporate taxes equaled its tax revenue from individuals; in 2016, Corporate America paid $401.2 billion in taxes compared to $1540.5 billion for individuals, a nearly fourfold difference.  Does that seem like a fair tax system?

Justin Trudeau and the Sunny Ways Government - Who Really Represents Canadians?

With the Trudeau II government moving forward with its changes to Canada's tax code and the public backlash against changes to the private corporation tax regime that has been in place since 1972, it's time to see who backs the Liberal government's proposals.  Other than public pronouncements by various Liberal MPs who are playing a game with their constituents, the only way that we can really tell what Finance Minister Bill Morneau's Liberal peers really think of his proposals and the short, 75 day period of public consultation, is to look at the voting record on Vote Number 355 from Sitting Number 211 held on Tuesday, October 3, 2017.

Here is the opposition motion as proposed by Pierre Poilievre, MP for Carleton and one of Stephen Harper's former House of Commons pitfalls:  

"That, given the proposed changes to the taxation of private corporations as outlined in the Minister of Finance's paper “Tax Planning Using Private Corporations” will have a drastic negative impact on small and medium sized local businesses, the House call on the government to continue, until January 31, 2018, its consultations on these measures."

On the surface, this proposal seems quite reasonable, given the scope of the proposed changes to the tax code.

Here are the overall voting results:

Here are the voting results by party:

Note that only one Liberal voted for the opposition motion and that every other Liberal member voted against what would seem to be a reasonable request of a three and a half month delay.  The only brave Liberal MP who stood against his party's unreasonableness was Mr. Wayne Long, representing Saint John - Rothesay in New Brunswick.  I guess we now know what his chances are of getting a seat around the Cabinet table let alone getting Justin Trudeau's stamp of approval as a candidate for the Liberal Party of Canada in the next federal election, don't we?  In fact, Mr. Long was removed from two committees; the Standing Committee on Human Resources, Skills, Social Development and the Status of Persons with Disabilities and the Standing Committee on Access to Information, Privacy and Ethics although his photo still resides on the human resources committee's websites as shown here:

Despite protestations by Liberal MPs like this from the Chair of the Commons Finance Committee, Wayne Easter, representing the riding of Malpeque in PEI:

"The government really needs to step back from this a bit. Let's go to the end of the consultation period, October 2nd. Let's ensure that these consultations are meaningful.  Maybe do a couple of the simpler things that were proposed, like ensuring that there isn't sprinkling of income to take undue advantage of the tax system."

Fortunately for him, Mr. Easter just happened to be AWOL on the day that the vote was taken.

...and like this from Liberal MP Sean Casey representing the riding of Charlottetown in PEI:

"I will freely acknowledge that to the extent the net has been cast too broadly, or has been perceived as being cast too broadly, that we missed the mark."

...and like this from Liberal MP Andy Filmore representing the riding of Halifax in Nova Scotia:

"Any changes that happen have to be able to provide parity for those that are funding their own retirements with those Canadians that are lucky enough to have those things looked after for them."

...and like this from Liberal MP Stephen Fuhr respresenting the riding of Kelowna - Lake Country in British Columbia:

"In my opinion, based on a ton of discussion I've had with people in my riding, and other MPs, I think we need a mediated solution between what's being proposed and what can be done.  We need some sort of compromise.  Some folks don't think these proposed changes are the right way to do it, and they're quite boisterous about it. I'm definitely going to convey their opinions to the decision-makers."

...the ladies and gentlemen that we elected to represent us under the Sunny Ways government in Ottawa are little more than sheep, following the orders of their Liberal Party elders rather than actually paying heed to those who took the time to vote for them.  Why should we be surprised?

Meet the new boss, same as the old boss.