@ducky_dnl – The more drastic the increase in the gap between the rich and poor, the more regressive the effect of the income tax is if it is spread evenly. An increase in 1% of one class’s income is completely different in effect than 1% of someone who makes twice as much. The percentages, however, at this point are pretty evenly matched: in 2007, the top 5% of income earners paid over half of the federal income tax revenue – however, as of 2004, the top 5% hold 59.2% of wealth; the top 1% of income earners paid 25% of the total income tax revenue – gain however, the top 1% hold 23.5% of wealth.

So here’s the thing – if you have 5% of the population with 60% of the revenue, and they’re paying 60% of the taxes, and lets say taxes eat up 30% of the total revenue, then the top 5% is taking home 40% of the revenue in the country. The other 95% of the population has the rest of the 40% of the gross revenue, and after the tax is taken out, they take home 30% of the money.

Therefore, in the end, 5% shares 40% of the annual revenue, and 95% share 30% of the annual revenue. Looking at it this way, we see that tax increases for the most wealthy affect the smallest part of the population that can handle it the most. If you spread the tax out across the population, then the wealthy are relieved of a burden they barely notice, but the rest of the country has to reevaluate their budget.

Put some cash on it. There are 100 people, and $100 for them. 5 of the people pay $20, and take $40 to split between them…so each person gets $8. the other 95 pay $10, and take the remaining $30 to split…and get 32 cents a piece. If we need to take $10 more dollars out for taxes, and we spread it evenly, the rich 5 pay $6 of it, and therefore split $34, and now have just under $7 ($6.80) a piece. The poor 95 pay $4, split $26…and now have only 27 cents a piece.

Now, if that entire burden is shifted to the top five, there’s a big drop in their take home, and it works out that they take home $6, and the 95 keep the 32 cents. If we assume that the 32 cents is enough to live on…then each of the top five, even in this situation, is making 19 times what they need to live. If we spread the cost, the 95 lose about 15% of their income and the 5 are making 21 times what they need to live.

Looking at it solely from the tax side, therefore, it’s difficult from a cost-spreading perspective to justify burdening 95% of the population with a 15% drop in their pay to something potentially below a living wage when they can shift the whole burden to the top 5% and those 5% would still be making enough to feed, cloth, and provide health care for themselves 19 times over.