The Shape of Taxes - What's Right?

Mark Perry at AEI took some recent Tax Foundation data and converted it to a graph.

Perry argues that the increasing number of people who file zero balance returns is a good thing. I am not so sure. Ultimately, any tax system needs to be broad enough so that most people participate in it. There should be equity considerations in any tax system but if half the people don't pay a tax - then it is very easy for the half that don't to be convinced that the half that do can accept even greater burdens. That same thing may be true when the number is slightly higher than a third as it is today. At the beginning of the Reagan administration that number was about half of what it is today for the top 1%. It is not clear where the right number should be - it should probably have some relationship to the percentage of income earned. According to the CIA Factbook the highest 10% of earners garner about 30% of the income, while the lowest 10% hold 2%. If you convert that to the calculation for income according to the IRS, the top 1% earned 23% of the AGI.

The second chart should also be troubling. As the graph points out, the top one percent of taxpayers pay a bit more than 40% of the total burden under the income tax. And the bottom 95% pay slightly less than 40%. Thus, the remaining 4% pay an additional 20% - or 5% of the taxpayers pay 60% of the income tax.