Distribution of Income by Source in 2009

Investment income (mostly dividends and capital gains taxed at a rate of 15% , and interest), is 60% of the income of the wealthiest taxpayers, according to IRS data for 2009. Business income is about 20%. Salaries and wages are about 20%. Other sources of income are insignificant for the wealthiest as a group.

Salaries and wages, taxed at rates up to 33%, are over half the income of people with incomes less than $500,000 per year. Other important sources for these taxpayers are Social Security, pensions and annuities, and business income.

Source: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=134951,00.html

Favorable Taxation for the Wealthy in 2009

The United States Internal Revenue Service has released 2009 tax statistics for individuals. Persons with incomes greater than $10 million pay income tax at a lower rate (22%) than those earning between $500,000 and $10 million (24% to 26%). Also, those with incomes less than $5,000 pay a higher rate (5%) than those with incomes between $5,000 and $25,000. Patterns of taxation in 2009 were similar to 2008.

How Income Tax Rates Affect the Marginal Cost of Job Creation

An employer's marginal income tax rate influences his or her incentives for hiring new employees.

	Our Universe	Alternate Universe
Marginal Tax Rate of Joe's Employer	25%	75%
Joe Gets a Raise	5,000	5,000
Additional cost of Joe's raise to Employer after tax	3,750	1,250
New Employee Salary	50,000	50,000
New Employee Payroll taxes	15,000	15,000
New Employee Equipment & Real Estate	35,000	35,000
Total Pre-tax cost of New Employee for one year	100,000	100,000
Total After-tax cost of New Employee for one year	75,000	25,000

Lower Tax Rates Apply to Highest Incomes

US taxpayers with incomes greater than $10 million and corporations pay income tax at a lower rate than persons with incomes between $500,000 and $10 million.

Paul Ryan's Budget Proposal

Mr. Paul Ryan is a Republican Representative from Wisconsin and Chair of the House Budget Committee. On April 5, 2011, he released The Path to Prosperity, a document that introduces and defends his proposed budget resolution for the US Federal government. Path selectively ignores the EBS “Extended-Baseline Scenario” of the CBO Congressional Budget Office. EBS, which allows the Bush tax cuts to expire, and which avoids drastic spending cuts, produces no significant future deficits.

With Path, Mr. Ryan plays a complex rhetorical shell game. Path assumes from the start that the Bush tax cuts for the wealthy will continue. That is, Path assumes that Path passes the Congress. If Path doesn’t pass,

Productivity: Who Gets the Benefit?

The chart compares labor output with household income in the United States in the 20 years from 1987 to 2007. We see that the labor productivity increased. The output from an hour of labor increased 55%.

Labor provides the income for most households in the United States. During the same 20 years, median household income increased 10%.

Output per hour of labor increased markedly, but the rewards to labor increased only modestly. We ask:
1. Is it fair that workers didn’t get a share of the increases in the productivity of their labor?
2. Who took the workers’ share?

The California Experience

On December 19, 2008, Governor Arnold Schwarzenegger ordered California state workers to take 1 day per month as an unpaid furlough, beginning in February 2009. That has grown to 3 days per month at December 19, 2010, roughly a 15% decrease in pay and working hours. The California Supreme Court ruled on October 4, 2010 that the governor may not order furloughs and pay cuts for state employees, but these decisions require the legislature to act. A few days later, the California legislature passed the budget with an $896 million cut in pay for state workers and with furloughs.

Some workers covered by collective bargaining contracts have their pay reduced under different terms. Different agencies and departments use different approaches. Some agencies simply shut down three days per month. Others schedule individual workers' furloughs for different days. Sonoma State University told instructors to