Howard Marks on U.S. Taxes

I've put in a link to an interesting memo from Howard Marks, CEO of Oaktree. This is a very comprehensive piece on our current tax policy as well has future alternatives for the tax structure of the US. While I disagree with some of the points he makes in his conclusion, this is still a worthwhile read in order to understand the tax issue at hand.


The top 1% of U.S. taxpayers pay 38% of all individual federal taxes. The top 10% pay 70% of all taxes, the top 25% pay 86%, and the top 50% pay 97%.
That leaves the bottom 50% of all taxpayers paying only 3% of the total.
About half of Americans pay no federal income tax, and almost 25% pay no federal taxes at all.
The average federal income tax rate for the top 1% of Americans is 23% (and for the top half it's 14%), while the average rate for the bottom half is 3%.

Notwithstanding the rhetoric, there's no doubt about the fact that America's top earners are taxed more heavily than the rest. On the other hand, they pay at lower rates than they used to (when I was a boy the top marginal rate was 94%), and it seems progressivity has declined.
". . . the effective federal tax rate, including payroll taxes, for the wealthiest 0.01 percent of earners fell to 31.5 percent in 2005, from 42.9 percent in 1979 [for a decline of 26.6%], according to data from the Congressional Budget Office. Over the same time, effective rates for taxpayers in the center of the range fell to 14.2 percent, a decrease of just 4 percentage points [or 22.0%]." (The New York Times, September 21, 2011)
.....................
One of the outstanding characteristics of the U.S. economy at this time is the rising dispersion between incomes. The percentage of total income going to higher earners has been increasing dramatically, whether because of (a) the rising importance of education and technological literacy or (b) the movement of work offshore, the declining availability of blue-collar jobs and the reduced power of private-sector unions to garner wage gains. And given the pattern of tax cuts and the special treatment given to income on capital, the tax system has magnified the divergence.
A recent report from the Congressional Budget Office provided dramatic evidence of the divergent trends in income. It outlined the percentage gain in average inflation-adjusted after-tax income of various income groups between 1979 and 2007:
Top 1% of the population in terms of income: 275%
Next 19%: 65%
Middle 60%: 40%
Bottom 20%: 18%

http://www.valuewalk.com/2011/11/howard-marks-memo-taxing/