Posted on 09/22/2011 8:01:44 AM PDT by Kaslin
>What's the biggest single factor that determines how much money the U.S. federal government will collect in any given year?
For our money, it's Median Household Income. The chart below, which shows the relationship between median household income and the total receipts of the U.S. government for each year since 1967, the earliest year for which we have median household income data, shows why we think that.
Here, we found that a simple power law relationship exists between the amount of median household income in the United States and the total amount of money that the federal government collects each year, which is why we've opted to show both the horizontal and vertical axes on a logarithmic scale: a power law relationship becomes a straight line when graphed on such a chart.
All in all, given the variation we observe from year to year, the formula we presented on the chart will be accurate to within 12% of the actual amount of money collected by the U.S. government in any given year if you only know the median household income, and often much less than that amount. That's pretty remarkable considering how much, and how often, U.S. income tax rates have changed since 1967.
This suggests that no matter waht you do to tax rates, the biggest thing you can do to boost tax revenue is boost household income.
But then, you don't have to take our word for it. You can use the tool on this page to do the relevant math for yourself.
And now, you would just need to compare your results with the OMB's historical tables for "Total Receipts".
Speaking of variation, most of what we observe in the data may be linked to the economic situation of the U.S. Here, we see the government really raking in high dollar amounts during the inflation phase of economic bubbles (say 1998-2000 and 2005-2007 for example), while recession years see the government raking in much lower amounts, especially during the deflation phase of economic bubbles (2001-2003 and 2008 to the present.)
U.S. Census. Income Data, Historical Tables. Table H-5. Race and Hispanic Origin of Householder -- Households by Median and Mean Income: 1967 to 2010 [Excel Spreadsheet]. 13 September 2011. Accessed 20 September 2011.
White House Office of Management and Budget. Budget of the United States Government: Historical Tables Fiscal Year 2012. Table 1.1 - Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789-2016 [Excel Spreadsheet]. 14 February 2011. Accessed 20 September 2011.
why no data past 2007 on that graph?
That one co-relationship, without more, doesn’t tell squat beyond the fact that “the government has inflated the money.”
It’s not a time scale plot, it’s a scatter plot showing the correlation between household income and government revenue.
2010 is there, just not as the last point.
I see ‘em, just to the left of 2007.
2007 is the high watermark. 2009 and 2010 are lower (and below the curve).
Kill the middle class, kill revenue, and get downgraded.
maybe this is a good thing -- maybe the only way to kill this goddam Beast is to kill the host -- the middle class. They're certainly doing that.
but now they want that other host, "the rich." hence the new obama plan. But what will the Beast do when it kills that host?
Yeah, they're bloodsuckers all right.
if gov't inflated the money, and that relationship did not exist, it would be a strong argument for the opposite conclusion. ergo...
That's the biggest revelation from that graph.
Cboldt wrote:
That one co-relationship, without more, doesn’t tell squat beyond the fact that “the government has inflated the money.”
However it's very interesting to note that various years on that graph had very different top marginal tax rates, and yet, those rates seem to have little effect on this relationship.
There have been other graphs, usually on a time scale, showing revenue (tax receipts) as a percentage of GDP and top marginal tax rate which show there is no relationship between the top marginal rate and the revenue collected. The revenue collected tends to fall in a very narrow band, and it's usually lower in relationship to GDP during or immediately after a recession, IIRC. That's certainly the case today.
Either way you look at it, growth in the economy yeilds more revenue for the government. In the end, nothing else matters. Changing tax rates doesn't change revenue levels.
This graph actually shows that total GDP perhaps isn't as important as median household income. I'd be interested to see whether Per Capita GDP has a similar relationship.
The conservative looks at that graph and says, “increased gov’t revenue is caused by rising income.”
The liberal looks at that graph and says, “increased gov’t revenue causes rising income.”
If the government gave every household 1,000,000, then took it all back (windfall gift tax), the government would be rich!
Having the years 2008 - 2010 lower on the scale than 2007 shows how the Democrats are succeeding in killing the economy as well as hurting the overall tax revenues. We have back-slidden due to the stupidity of tax and spend policy that liberals love.
The most egregious point is: they will actually keep spending more in light of the fact that they are taking less in taxes due to the evil nature of using future money thru the Fed Reserve.
What amazes me the most is how it has taken them over 100 years of tax, spend and inflate the money supply to completely bankrupt the U.S. and if we the people wrest control and sanity back how we can possibly even recover from it all. But the clock is ticking...
“The Guess What’s”? - ripoff cover band of The Guess Who?
There is: there are data points for 2009 and 2010, but both median household income and Federal tax receipts fell since 2007. (The horizontal scale is median household income, not time, and thanks to Obama’s policies, the expectation that median household income will rise over time has not been true lately.)
Someone should pull the boy wonder aside and explain to him that he just proposed decreasing the household income of the wealthy ... hoping that it will boost tax revenue.
No, the correlation has nothing to do with inflation or inflationary government policies. The same slope in the log-log plot fits data limited to the period 1986 to 1994 when inflation was negligible and Fed policies were strongly directed toward keeping inflation in check, during the inflationary period in the late 1960’s and 1970’s and in the recent data with the Fed printing dollars like they’re going out of style (which is the likely result of printing so many).
Actually, based upon collected income taxes and Social Security taxes (just those two things), the top 25% of earners - the "rich" and "near rich" - pay 60% of ALL Federal revenues. The bottom 75%, all corporations, all excise taxes and tariffs, all capital gains and estate taxes, all fines, everything else added together cover the other 40%.
It really is "the rich" who not only pay their fair share, they pay the supermajority share.
That's Hauser's Law. Worth reading about...
I thank you for the details. I remain skeptical. I especially think the oft-repeated argument downplays the importance of the middle class, unless the middle class are somehow contained in that “top 25%.”
One should always exercise skepticism! :) Here's some background:
The top 25% of all income earners pay 87% of all income taxes. Since income tax accounts for $1 trillion of of the Federal receipts, and SS accounts for $940 billion, they pay the lion's share of income taxes and about 55% of all social security taxes (55% derived by breaking down the top 25% and taxing just the portions of their income below $107,000).
This data means that the top 25% pay somewhere around 71% of total income and SS/FICA taxes, which accounted for 84% of total Federal receipts.
Meaning, the top 25% are directly paying 60% of all Federal receipts (71% of 84% is 59.64%, about 60%).
The other 75% of all taxpayers, 100% of all corporations, all the duties and tariffs, capital gains taxes, estate taxes, fees and levies, all other source combined account for the other 40%.
The rich really do pay not just their fair share, but the supermajority of all Federal revenues, and it's done with just their income and Social Security taxes. I'm sure if we added in capital gains, corporate, and excise/tariff fees as well (all of which are typically paid by more well-off people than poor people), we'd see an even higher percentage of total Federal revenues from the top 25%.
My guess is that it will be somewhere around 63-65% of all Federal revenues come from "the rich" - the top 25% of all income earners in the US.
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