Understanding Inequality and Taxes

Claims of how many households pay income taxes, or income and payroll taxes, or net tax (thanks to negative tax impacts of EITC) are common, but frequently erroneous.  Corrections looks to help put these to rest.

While it can be looked up, Corrections gives two graphs to give an idea of what households pay taxes.  Depending on our measurements (including Federal or state+federal, no deductions/deductions, etc.), 68.2% and 78.7% of households pay positive taxes.  This differs by about 17%-28% from Mitt Romney's "51%" that  "paid taxes."  About 10% of this comes from not being in the depths of the great recession, most of the rest comes from including FICA taxes (which are rarely included in these calculations), with some of the residual also coming from including state taxes.

 First, we display six different measures of the proportion of household heads or households that pay taxes.  We break things up by federal vs. federal+state taxes, and before and after tax deductions (primarily the EITC and additional child credit).  We also include two additional measurements by including SSI and TANF benefits as well as EITC (click to enlarge).  We give these graphs by age of household head.

We also display the distribution of the size of welfare payments (EITC, SSI, TANF, Additional Child Credit) conditional on being positive (click to enlarge).  

We can certainly reject claims like "60% of households don't pay taxes."  We can also note that claims with high proportions of households not paying taxes depend heavily on the use of households that are above the age of 60, or by including people in households that pay taxes but that themselves don't pay taxes, as when households file separately.  

As an aside, Corrections has heard the phrase "IQ's drop by 20 points when discussing politics."  Corrections has a mildly more amusing (tongue-in-cheek) formula with the same concept.  

1. Let IQ_P be ones IQ when discussing politics.
2. Let IQ be ones IQ under normal circumstances.
3. Let R be ones ranking of Reagan (or FDR) on a scale from 0-1.

IQ_P = IQ-2*IQ*(R-0.5)^2

Is the U.S. a less competitive environment?

There exists an open question: "Is the U.S. a less competitive environment than it was in the past?"

There are many ways of trying to answer this question.  I start by running two tests, three examinations to examine whether or not the U.S. is a less competitive environment.  The first is what percent of the total market cap (AMEX, NASDAQ, NYSE) is held by the largest 10 and 20 firms (click to enlarge).  The second is what percent of the total market cap of the top 100 firms are held by the largest 10 and 20 firms (click to enlarge).  Both show fairly clearly that inequality, in the top 100 (and across the market barring market size effects)  has reduced: any "capital" advantages held by the largest firms are smaller than they were historically.

Next I look at the 10-year change in the top-10 and top-20 firms.  That is, the chart below (after 1935) gives data on the number of new firms in the top 10 or top 20 (by market capitalization) that weren't in the top 10 or top 20 10 years ago.  Unlike the cross-sectional data on firm size, this shows a lowering of competitiveness starting around Q2 2001 and continuing for the next 13-14 years (click to enlarge).