Chart of the day, US taxes edition

By Felix Salmon
March 16, 2011
Ask, and you'll receive an explanation of what this chart means.

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Ask, and you’ll receive an explanation of what this chart means.


tax_burdenthinOne way to look at this chart is in horizontal slices. Right now, for instance, if you look along the bottom of the chart, you can see that the line is bluest at the right-hand end, and reddest in the middle-class zone up to roughly $100,000 a year in annual income. When the chart is blue, that means you’re paying less tax than people on your income level have done historically, and when it’s red that means you’re paying more.

Looked at this way, you can see that taxes were generally very low up until about 1930, and they were generally pretty high in the 1940s and 1950s. And then something interesting happens around 1970: different parts of the population start being taxed in very different ways. So people earning roughly $10,000 to $50,000 a year had historically very low tax rates between about 1970 and 1980, while people earning more than $1 million a year (in 2011 dollars) have been doing very well for themselves since about 1990.

Another way to look at the chart is to look at vertical slices of it. For instance, the slice for people earning $1 million per year, in 2011 dollars, is on the left. In this case, the very rich had it best during the Gilded Age of the 1920s, and were taxed most heavily in the 1940s and 1950s. During the 1980s they were taxed at a historically-normal level, and today they’re undertaxed by historical standards.

But the main takeaway from the chart, at least for me, is that taxes in general have been declining for a long time now, especially on the rich. Which is one big reason why the fiscal situation looks unsustainable: we’re just not raising enough money in taxes to be able to pay for the amount we spend each year. With entitlements on both the retirement and healthcare side of things certain to rise inexorably for the foreseeable future, the chart is going to have to get redder from here on in. It’s not a question of whether, it’s just a question of when.


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Great find.

Posted by Chris_Gaun | Report as abusive

Dreadful takeaway. Pretty chart.

You do realize we don’t “fund” anything with taxes. We have a fiat currency. We are never revenue constrained.

I can’t tell if you believe the deficit terrorist line or whether you are just appeasing Peter Peterson.

If you really believe something is unsustainable, please argue why. We’ve had debt since 1776. Is it all coming due now???

Posted by petertemplar | Report as abusive

That massive Economist banner ad is all the more amusing considering that Felix mentioned in a “What I Read” some time back that he definitely does not read it.

Posted by Pietro_F | Report as abusive

petertemplar, you’ve repeatedly spouted that line, never shown any evidence of actually THINKING about its implications.

Remember that the real economy produces and consumes. Currency and revenue are simply the intermediary. If the government chooses to fund its programs through monetary policy rather than through taxes, it *is* a tax on anybody who holds dollars. Just a tax with some hard to predict consequences.

Open taxation is generally preferable to shadow taxation. At least then you can debate the least damaging and most equitable way to institute the taxes.

Posted by TFF | Report as abusive

Very interesting chart. A couple of quick points:

1. Because the chart shows relative levels of taxation, you have to be careful about interpretation. If a group was traditionally gouged, then they may seem to be making out well if they become less gouged. I’m not saying that this is what has happened with the rich, just that you have to be careful before drawing conclusions.

2. At the low-end of the income distribution, we’ve been successively exempting more and more people from taxation. $10,000 in taxable income is higher on the standard of living scale today than it was 20 years ago, so you aren’t really looking at the same people as you take vertical slices at lower income levels.

Posted by Eric_H | Report as abusive

Yes to Eric_H’s point 1. The chart is useful in showing historical trends, but not useful in asking whether the current tax-income profile is reasonable. For that, you need absolute, not relative numbers.

By the way, the X axis is logarithmic, but why the strangely nonlinear Y axis — compressed at the top and the bottom?

Posted by samadamsthedog | Report as abusive

(1) The chart depicts the Federal Income Tax, not “taxes” in general. (2) History is not normative; the fact that what we’re doing now is different from what we did in the past is no sort of evaluation of what we are doing now.

Posted by Philon | Report as abusive

Bet the chart is based on recognized income and not economic income. So Steve Jobs is reflected as having one dollar of compensation from Apple and not the $615 million his Apple stock appreciated in 2010. Thus, the superwealthy pay far less of their share of economic income than this chart reflects.

Posted by comment1 | Report as abusive

If you want to generate a chart or graphic which illistrates that the lower and middle classes get the short end of the tax stick you need to use “historically relitive” rather than absolute numbers, nonlinear axis scales and the like.

The federal income tax burden has fallen BELOW ZERO for several MILLION filers. Including some filers that earn up to $40,000.

I am a strong vocal supporter of the EITC because it promotes socially desirable behavior like work rather than non-work.

While it is true that todays tax code treats the wealthy better than at any time since the 1920′s it is also true that the tax code treats the working poor better today then at any time in U.S. history.

Social security taxes are also negitive. Workers on average collect slightly more in benifits then they paid into the system.

Medicare taxation is negitive in the extreem… current retirees are collectively receiving many dollars of healthcare benifit for each dollar they paid in during their working lives.

Social Security can easialy be saved in its current form with relitively small ajustments.

The scope of services covered by medicare will be cut by at least 50%. Yet that won’t be anywhere near as bad as it sounds. Most countries spend less and get better results than we do in the U.S.

Best hopes for an tax system that continues to strongly reward work and one that rewards savings and investment even more strongly than the current system.

Posted by y2kurtus | Report as abusive