Physiocratic Platform: Transaction Tax

One Tax to Rule Them All, And In the Banking Bind Them

Today we continue our series on taxation. As noted in the earlier essays, we start from this premise: If taxation is to be morally legitimate, then (a) it must be in service of a morally legitimate government; (b) it must be imposed in a manner that is reasonably related to the government’s services; and (c) its cost should be born, not by “the poor” or “the rich” per se, but rather by those who benefit from its services.

The first principle dictates the type of governments that can legitimately impose taxes; the second principle dictates what types of taxes those governments can rightfully use; and the third principle dictates who can be charged those taxes and how much they can be charged. The physiocratic theory is effectively neutral about whether a tax should be “progressive,” “flat,” or “regressive.”

If we follow the American tradition that men establish governments in order to secure their rights, then any morally legitimate government must provide services related to securing those rights. It seems to me that the services of such a government can be reduced (at a bare minimum) to four:

1. Maintaining peaceful transfer of power over time;

2. Protecting the person and property of citizens of the state from violation;

3. Securing the state’s borders from incursion and invasion; and

4. Upholding the legitimate contracts made by the state’s citizens.

Obviously a government surely can do other things, and most governments do many other things, but a government that cannot do what’s necessary to provide these four services will be a government that fails its necessary purpose.

If these are the necessary purposes of government, and if taxation must be reasonably related to these purposes, then the scope of taxation is necessarily limited. Working from this core of four services, I have identified four taxes that can be imposed in a manner that is reasonably related to those services and paid by those who benefit from them. These four taxes are:

• Poll taxes

• Land-value taxes

• Tariffs

• Transaction taxes

In the first installment in this series, we discussed poll taxes. In the second installment, we discussed tariffs. In the third installment, we discussed land-value taxes. In today’s installment, we will discuss transaction taxes.

Transaction Taxes

A transaction tax is a levy imposed on some or all monetary transactions, typically as a small percentage of the monetary value exchanged. These taxes are designed to capture revenue from the flow of money within an economy, rather than directly taxing income, consumption, or property. Unlike traditional forms of taxation that focus on end-user activities (e.g., income earned), transaction taxes operate at the point where economic exchanges occur.

Transaction taxes can be as broad or narrow in scope as desired. They can apply to a wide range of activities, including purchases of goods and services, transfers of financial assets, bank deposits and withdrawals, and trades on stock and derivative markets.

Narrow transaction taxes are already used worldwide. They typically are used in conjunction with other forms of taxation, including property taxes and income taxes, and generate only a small portion of the tax revenue in their jurisdictions. The narrow transaction taxes in use include:

• sales taxes, which are consumption-based tax levied on the final purchase price of goods and services, typically paid by consumers at the point of sale.

• value-added taxes (VATs), which are multi-stage consumption tax applied at each stage of production or distribution, where businesses remit tax on the value added to goods or services at each step, ultimately borne by the consumer.

• financial transaction taxes (FTTs), which are levy on specific financial transactions, such as trades of stocks, bonds, derivatives, or other securities, designed to capture revenue from financial market activity and potentially curb speculative trading. The FTT was first proposed in 1972 by Nobel Prize winning economist James Tobin, and is often called the “Tobin Tax.”

You are almost certainly familiar with all of these taxes, and we need not dwell on them, as they have no place in our physiocratic regime.

Broad transaction taxes, unlike their narrow counterparts, have not yet been implemented in any country. Broad transaction taxes go beyond narrow transaction taxes by aiming to capture revenue from the entire economy, sometimes even including the massive volumes of financial transactions that currently escape taxation in most jurisdictions. The distinguishing features of broad transaction taxes are their simplicity and universality: a tiny, uniform rate is applied to all or most transactions within its designated base, ensuring that everyone who participates in economic exchanges contributes to the revenue pool. A number of broad transaction taxes have been proposed; these are summarized below, with links to the full proposals for each.

• The Automated Payment Transaction Tax (APT) proposes a tiny tax on all financial transactions, including consumer purchases, payroll transfers, financial market trades, and interbank activities. Both sides of each transaction are taxed, effectively doubling the base. The tax is collected automatically at the point of transaction, reducing compliance costs and evasion, while capturing value from all sectors of the economy. The APT was proposed in 1989 by Professor Edgar L. Feige as an extension of the Tobin Tax to its logical conclusion, e.g. to tax all transactions. It proposes a tax rate of 0.135% on each party (0.27% total or 27 basis points) on a tax base of $674 trillion, generating $1.82 trillion annually.

• The Withdrawals Tax (WTX) proposes a tax on only withdrawals from designated personal and business bank accounts. The WTX was proposed in 1999 by Professors Patrick Colabella and Richard Coppinger to replace the income tax, sales tax, and estate tax. It proposes a tax rate of 5% on a tax base of $186 trillion, generating $9.3 trillion annually.

• The Universal Exchange Tax (UET) applies to all exchanges of value, including financial transactions processed through clearinghouses and other intermediaries. The UET is similar to the APT, but by taxing only one side of transactions, the UET minimizes the perceived burden while offering flexibility to adjust rates based on revenue needs, targeting speculative activities and promoting fairness across all economic sectors. The UET was developed in 2014 by an anonymous economist and posted online. It proposes a tax rate of 0.1% (10 basis points) on a tax base of $4 quadrillion, generating $4 trillion annually.

• The Automated Deposit Tax (ADT) focuses on taxing deposits into qualified financial accounts, including payments for property and asset transfers. The tax is simple to administer, collected automatically by financial institutions at the moment of deposit, and eliminates the need for tax returns or compliance costs. The ADT was developed by Dr. William J. Hermann Jr. in 2015. It proposes a tax rate of 1% on a tax base of $458 trillion, generating $4.58 trillion annually.

• The Monetary Payment Tax (MPT), which applies to all transfers between bank accounts of tax payers (individuals and firms) and all transfers between reserve accounts of commercial banks at the central bank, except that monetary policy related operations and inter-bank loans would be exempt. The MPT was proposed at the June 2021 Autorité des Marchés Financiers (AMF) Scientific Council Meeting by economists Ivar Ekeland, Jean-Charles Rochet, and Vincent Wolff. It proposed a tax rate of 0.2% (20 basis points) on a tax base of 100 x GDP; in the US, that would be $2.72 quadrillion, generating $5.4 trillion annually.

The physiocratic platform is based on the 2021 monetary payment tax (MPT) proposal. It entails a 0.5% (50 basis point) monetary payment tax on a projected tax basis of $1.90 quadrillion, generating $9.5 trillion annually.¹

Funding Required

As noted in the first installment, the physiocratic tax program is intended to replace all taxation in the United States. That means we need to account for government spending of approximately $5.08 trillion for the federal government (20% of GDP); $3.59 trillion for state governments (13% of GDP); and $1.83 trillion for local governments​, for a total of $10.5 trillion.

In our prior tax proposals we have collected $202 billion from poll taxes; $460 billion from land-value taxes; and $975 billion in tariffs, for a total of $1,637 billion. Therefore, we need to collect $10,500 billion - $1,637 billion = 8,863 billion or $8.86 trillion USD from our transaction taxes. Our 50 bps MPT does hit this goal. In fact, it overshoots, meaning we could ditch the land-value taxes!²

Policy-Making Analysis for the Physiocratic Transaction Tax

For purposes of grand policy, the five existing proposals for broad transaction taxes can be simplified down to two sets.

• The first set (consisting of the APT, UET, and MPT) taxes all transactions, with the tax applied to both parties of the transaction (APT) or just one party (UET/MPT). The first set achieves a very high tax base of between $647 trillion USD (as of 2014) and $2.72 trillion USD (as of 2021) and a very low tax rate of between 10 and 30 basis points.

• The second set (consisting of the WTX and ADT) taxes bank settlements, either at deposit (ADT) or withdrawal (WTX). This set achieves a lower (though still high) tax base at $186 trillion USD (as of 1999) to $458 trillion (as of 2015), with a higher (though still low) tax rate of 1% to 5%.

The primary difference between the two systems is that the first set (APT/UET/MPT) aim to tax financial market transactions (and are thus a type of financial transaction tax or FTT) while the second set (ADT/WTX) explicitly avoid doing so. For instance, the WTX policy paper explicitly notes “The income-making activity of [a WTX securities account], namely the security purchases and sales, would not be taxed. Instead, the account would be treated like an IRA account, taxing [only] withdrawals regardless of their nature.”

The ADT likewise excludes securities transactions of all sorts. Dr. Hermann, creator of the ADT, explains why: “After studying Dr. Feige’s work and presenting it in live forums, blogs and through the apttax.com website for ten years, I decided that using ALL transactions was unnecessarily complex, especially with serious issues in the security markets.”

Impact on Security Markets

What are those “serious issues in the security markets”? Well, critics of financial transaction taxes believe that trading volume in the securities markets would be seriously diminished if they were implemented, with disastrous effects on market efficiency as well as purported revenue generation.

It’s not just critics, really; it must be admitted that even the proponents of these taxes agree that transaction volume would substantially decrease. For instance, Dr. Feige, creator of the APT, notes:

The APT tax rate will induce economic agents to economize on the volume of transactions they undertake. The extent of this effect will depend upon the elasticity of transactions in the US and the percent by which current transactions costs would be increased. The most careful, albeit dated, estimate of the elasticity of equity trading volume to transaction costs in U.S. equity markets is (-.26) by Epps (1976) suggesting that a 100 percent increase in trading costs would reduce the volume of transactions by 26 percent. The transactions costs paid in 1999 for equity trades by institutional investors in the United States averaged 28.5 basis points. Adding a transactions tax of 13.5 basis points would raise transactions costs by 50% leading to an estimated decline in total transactions of 13%.

And the AMF Scientific Council notes:

Virtu [2020] finds average trading costs in Europe of 40 bps.

Abdi and Ranaldo [2017], Eaton et al. [2020] find average implicit trading costs measured by the effective spread of 84 bps and 70 pbs, respectively.

Colliard and Hoffman [2017] finds a 20 bps FTT introduction in France reduces volume by 10% - 20%. Wolff [2018] finds additional 10 bps increase has no effect on volume.

So both the APT and the MPT believe transaction volume in the securities market would decline by 10% - 20%. That is a substantial decline but it is not dissimilar to the decline caused by the tariffs we’ve proposed.

The ever-reliable Brookings Institute, however, has posted an article “What is a Financial Transaction Tax,” which argues for a much larger impact:

Several countries attempted large FTTs in the past and experienced significant capital migration as this SIFMA report documents. Notably, Sweden’s tax in the 1980s resulted in half of all equity volumes migrating by 1990. By 1991, it repealed all FTTs. Germany had a similar experience; its briefly-imposed FTT resulted in a one-third decrease in trading of public companies. Because capital and trading can migrate, there has been talk among major global economies at the G7 and G20 level of coordinating the imposition of a larger tax, although that has not yet happened.

Brookings also points out that high-frequency trading (HFT) would be completely destroyed by even a very small tax:

The tax [would] eliminate certain high frequency trading (HFT) for trades that would not be profitable paying taxes at this rate. HFT requires both a purchase and a sale, in very rapid succession, so they would pay the tax twice (buying and selling). Thus, anything that produces less profit than $2 per $1,000 traded would cease to be profitable under a 10- basis point FTT.

As can be seen in the Brookings Credit Suisse table below, high-frequency trading now accounts for approximately 55% of all financial transactions.

Nevertheless, the physiocratic platform proposes implementation of an extremely broad monetary payments tax (MPT) that includes securities transactions, rather than the much narrower ADT or WTX.

Let’s explain why!

Economic Justification for the Physiocratic MPT

The physiocratic MPT broadens the tax base. The modern economy generates extraordinary volumes of financial transactions, especially in sectors like securities trading, derivatives markets, and interbank transfers. These transactions can total quadrillions of dollars annually. A significant portion of this activity goes untaxed under the current system, which focuses primarily on income and consumption. By taxing securities transactions, our MPT captures revenue from a broader base of economic activity, reducing the need to heavily tax wages, consumption, or profits.

The physiocratic MPT raises revenue with minimal rates. Because of the vast scale of securities transactions, even a tiny tax rate can generate substantial revenue—enough to fund significant portions of the federal budget without placing excessive burdens on any single group.

The physiocratic MPT reduces harmful speculative activity. The MPT acts as a brake on speculative financial behavior, such as high-frequency trading (HFT) and excessive derivatives trading. While the Brookings Institute might think they are beneficial because they “provides meaningful liquidity to markets, lowering trading costs for everyone,” I believe these activities often create volatility in financial markets without contributing to the real economy. By raising the cost of such trades, our MPT discourages excessive speculation but it leaves legitimate investment largely unaffected. Claims that HFT are required to make our market “efficient” or “liquid” are proven false by history.³

The physiocratic MPT promotes simplicity and transparency. The MPT is simple to implement and difficult to evade. Modern payment systems, such as electronic clearinghouses, already track transaction data. This makes it feasible to automatically collect transaction taxes at the point of payment. Unlike income taxes, which require complex reporting and compliance efforts, a transaction tax operates with minimal administrative overhead.

The physiocratic MPT reduces unfairness in the tax system. The current tax system allows a significant portion of financial activity—particularly in speculative markets—to escape meaningful taxation. Meanwhile, consumers and income earners bear the brunt of taxes through income and sales taxes. The physiocratic MPT ensures that all economic participants contribute, including those benefiting disproportionately from the financial infrastructure maintained by the government.

And, most important of all, the physiocratic MPT tax is ethically legitimate. Every economic transaction depends on the existence of secure property rights, enforceable contracts, and a stable financial system. These are core functions of government. Without courts to resolve disputes, police to prevent fraud and theft, or regulators to oversee financial markets, transactions would be risky and unreliable. A broad transaction tax ties the cost of maintaining this infrastructure to the activity that benefits from it. By tying taxation directly to the flow of economic activity, the physiocratic MPT aligns with the fundamental physiocratic principle that those who benefit from government services should contribute to their cost. It offers a fair, efficient, and transparent mechanism for funding public goods, while addressing the inequities and inefficiencies of the current tax system.

Calculating the Tax Base for the Physiocratic MPT

The ever-attentive Tree of Woe reader will have doubtless noted the discrepancy between the tax base proposed by the original MPT and my own physiocratic MPT.

The original AMF Science Council paper proposed that the MPT’s tax base would be 100 x GDP. With the US having a $27.2 trillion GDP, that yielded a $2.72 quadrillion tax base. I proposed that the MPT’s tax base would be $1.90 quadrillion, which is 70 x US GDP. I’ve lowered the tax base by $0.82 quadrillion dollars. Granted, it’s not even a quadrillion dollars, but a quadrillion here and a quadrillion there and it starts to add up. What gives?

Well, I selected the AMF Science Council’s monetary payment tax as the basis for the physiocratic platform for two reasons. First, the data it used to calculate the tax base was more recent (2021) than the data the other proposals used, which was a decade to three decades out of date.

Second, the economists who proposed the MPT were refreshingly honest about their data. The AMF paper calls payment data a “black box” that is “scarce and incomplete.” And they note in Future Work (slide 16) that “we need more data on payments, especially wholesale payments.”

Since even the prestigious Autorité des Marchés Financiers was unable to open up the data black box, it will come as no surprise that I wasn’t able to, either.⁴ Instead, I have simply made a “back of the napkin” calculation based on their estimates combined with the Brookings Institute critique:

• Retail payments are 10x GDP

• FX payments are 20 x GDP

• Wholesale payments are 80 x GDP

• 50% of wholesale payments are high-frequency trading, low-margin derivatives, or other securities transactions, and all these payments vanish when the MPT is implemented.

The net result is 10 + 20 + (80 x 0.5) = 70 x GDP tax base.

Addressing Tax Evasion

People hate paying taxes. Even if they are charged low taxes, they’ll still try to evade them to pay no taxes! What is true for income taxes and property taxes is true of transaction taxes, too. If a transaction tax is put in place, people will almost certainly attempt to avoid the tax by paying in cash, using barter, or other means. Colabella and Coppinger accurately describe the problem when they note:

The first reaction people have is that [a transaction tax] won’t work because people will just hoard money or use a substitute currency to avoid flowing any cash through a financial intermediary. Clearly, a large-scale underground currency exchange would compromise the system…

Their solution to the problem, however, is not acceptable to the physiocratic platform:

We would rather focus your attention on the future where all cash transfers outside electronically controlled parameters are no longer viable and the use of substitute currencies was simply outlawed, perhaps globally.

In the words of Jordan Peeler, “nope.” We have a far better solution. It starts by remember that the transaction tax is legitimate because it is reasonably related to a government’s service (enforcement of transactions) and its cost is born by those who benefit from its services (parties to the transaction). Now simply reverse the causality: Those who do not pay the cost of the government’s services (the transaction tax) cannot benefit from the service (enforcement of the transaction).

In other words, you can buy your car/house/groceries using anonymous cryptocurrency on the blockchain or dirty cash or gold bullion or however else you and your transaction party prefer, but if you don’t pay the transaction tax, the transaction isn’t enforceable in court.

Note, please, how elegant this is: The transacting parties are empowered to decide whether or not a particular transaction is important enough to merit lawful protection and if not they are free to use cash or crypt to avoid the tax. Would you wire $4M for a house knowing the mortgage was unenforceable? Probably not. You’d pay the 50 basis points. Would you worry about the MPT when the little girl next door sets up a lemonade stand in your cul-de-sac? Probably not.

Calculating the MPT’s Tax Effect on Individuals and Businesses

The physiocratic MPT imposes both a direct and indirect tax on both households and businesses.

Direct Tax on Households

“A household that spends its entire revenue R would be taxed as it comes in the current account and as it leaves it: the tax base is 2R.” (quoting slide 10 of Modernizing the Tax System). The tax paid would therefore be 0.5% x 2R, that is, 1% of its household income.

Direct Tax on Businesses

“Let T be the turnover and m the profit margin, so that revenues R = mT. The tax base is roughly 2T = 2R/m, so profit becomes mT - 2tmT, where t is the tax rate. Margin is therefore reduced by 2t.” (quoting slide 11 of Modernizing the Tax System). The profit margin is reduced by 1%.

Indirect Tax by Cascading

“Cascading refers to the repeated taxation of the same items as they are sold and resold at successive stages of production causing the ultimate price of the completed product to include all the taxes paid in the stages of production and the related costs of sales and administration.” (quoting p. 10 of The Withdrawals Tax).

The impact of cascading depends on the number of stages in the production cycle of bringing a good to market. There are typically 5 stages in the production cycle:

1. Raw Material Suppliers (e.g. for a computer, raw materials include silicon (for chips), copper, aluminum, plastics, etc.)

2. Parts Suppliers (e.g. companies like Intel or AMD provide processors, while screen manufacturers supply displays)

3. Assembly/Manufacturing: (e.g. companies like Foxconn or Flextronics manufacture and assemble computers for brands like Apple, Dell, and HP.)

4. Wholesalers/Distributors (e.g. large tech wholesalers purchase computers and components in bulk from manufacturers.)

5. Retailers (e.g Best Buy, Amazon, or company-owned stores like the Apple Store buy goods from wholesalers and sell goods to consumers).

Of course, in some industries, these stages can be shorter or longer, depending on factors like vertical integration (where companies own multiple stages in the supply chain) or globalized production, where parts are sourced from various countries. In more vertically integrated companies (e.g., Tesla or Apple), the number of steps can be reduced as companies might control multiple stages of the process themselves, from design to manufacturing to retail.

If we assume a 0.5% monetary payments transaction tax and a five-step production cycle, where all prices are passed on to the final consumer, then the increase in prices from the tax cascading through the production cycle is (1.005^5 -1), or 2.525%. It is effectively a sales tax of 2.5% on consumer goods.

What does the Physiocratic Taxpayer End Up Paying?

Not that we’ve completed our write-up of the transaction tax, we have fully funded the entirety of the US government, at the federal, state, and local level. What is the tax rate paid by our taxpayers?

Before we calculate that, let’s revisit the current rates we calculated in our first installment:

• Bottom quartile households (lowest 25% of income) pay somewhere between 15% and 24% of their income to the government, either directly or indirectly.

• Median (middle-income) households pay (directly and indirectly) between 33% and 40% of their income in taxes.

• Top quartile (top 25% of income) households pay between 34% and 45% of their income in direct and indirect taxes.

• Top 1% households pay between 41% and 53% of their income in taxes, directly and indirectly.

Using the calculations in our prior three articles plus this article, we see that the physiocratic tax regime ends up like this:

• Bottom quartile households pay an effective 7.6% poll tax; an effective 5.76% tariff; a 2.5% indirect cascade transaction tax; and a 1% direct transaction tax, for a total of 16.86%. Their taxes are largely unchanged.

• Median taxpayers pay an effective 2.1% poll tax; an effective 5.76% tariff; an effective 4.33% land vale tax; a 2.5% indirect cascade transaction tax; and a 1% direct transaction tax, for a total of 15.69%. Their taxes are less than half what they previously paid.

• Top quartile taxpayers pay an effective 1.07% poll tax; an effective 5.76% tariff; an effective 3.1% land vale tax; a 2.5% indirect cascade transaction tax; and a 1% direct transaction tax, for a total of 13.43%. Their taxes are one-third what they previously paid.

• Top 1% taxpayers pay an effective .29% poll tax; an effective 5.76% tariff; an 8.33% land value tax; a 2.5% indirect cascade transaction tax; and a 1% direct transaction tax, for a total of 17.88%. Their taxes are also just one-third what they previously paid. The pre-tax earnings of high-tier taxpayers would be less, however; as the constant whirlwind of financial trading that happens behind the scenes would get heavily taxed, leading to lower dividends and gains.

• Mega-rich individuals would pay much more. The ultra-rich have access to a wide array of tax evasion techniques, the most impressive of which is to simply borrow against their assets instead of selling them, thereby avoiding capital gains taxes. All such transactions would be taxable.

The Physiocratic Tax Platform, Completed?

If the analysis above is correct, then the monetary payment tax (or your choice of other broad transaction tax) is the missing link needed to complete the physiocratic platform. The MPT seems so efficient and targeted that it almost seems we should eliminate the poll tax and land value tax and just use the transaction tax.

But that’s a big if, isn’t it? If the transaction tax is so superior, why hasn’t it been implemented? Its defenders claim because it is opposed by the most powerful lobbies in the world - banks and oligarchs. Its critics claim to see flaws that would make the transaction tax at best a failure at generating revenue and at a worse a calamity. Do wiser minds than mine see the flaws that are not apparent to me? I know I have a number of whip-smart economists among my readership so I will look forward to their comments.

P.S. See the footnote for an explanation of how I calculated the land value tax in the analysis above⁵. It is at best a rough estimate! Apparently important economics people don’t just sit around calculating the average amount of land owned by the average taxpayer, forcing me to do it for them.

1. The physiocratic MPT is remarkably similar to a new tax initiative that is gaining popularity in Switzerland. The Swiss payment tax would impose a tax of 0.50% (50 bps) on all non-cash payments, and would replace the Swiss income tax, value-added tax, and financial transaction tax.

2. The Contemplator on the Tree of Woe is fully cognizant that we should cut government spending. We are engaging here in an intellectual exercise of attempting to fund our government in a superior manner without cutting spending. We undertake this exercise not because it is easy, but because we thought it would be easy, and because we ran out of ideas for the Aenean Age.

3. At some point, a representative of the financial community will doubtless comment to tell me that HFT is necessary to ensure “efficient capital markets” or some such. This is, bluntly, not true. The efficient market hypothesis was both observed and mathematically confirmed half a century ago, when the transaction cost was 100 to 200 basic points per trade! Economist Eugene Fama formalized the Efficient Market Hypothesis in his 1965 doctoral dissertation at the University of Chicago, later published as The Behavior of Stock Market Prices. He used statistical methods to show that stock prices reflect all available information and move in a random, unpredictable pattern. Stock markets were already efficient 60 years ago; they didn’t and don’t need high-frequency trading.

4. Should any of you happen to elite wealth managers, federal bankers, or other banking and security professionals who can provide me with accurate data I would of course be in your debt for those findings. Spiritual debt, I mean. Like a debt of gratitude. Not an actual debt. Damn bankers. I haven’t paid off my student loans yet.

5. The estimated value of all homes in the US is $50.76 trillion, while the estimated value of all land in the US is $23 trillion. We assume therefore that if a household owns a house worth X, it owns lands worth ( $23T / $50.76T ) = 45% of X. Bottom quartile homes are worth approximately $220,000. Median value homes are worth $360,000. Top quartile homes are worth $522,000. Top 1% homes are worth $2M and up - we will say $5M to account for the long tail. That yields land ownership of $99,000; $162,000; $235,000; and $2.25M respectively. At 2% LVT, the land tax payable by each group is $1,980; $3,240; $4,700; and $45,000. Bottom quartile taxpayers have a median household income of approximately $20,000 per year, so the LVT is $1,980 / $20,000 = 9.9%. However, they are likely renters, and the LVT is passed on to the landlord. We will assume this is subsumed in the top 1%. Middle quartile taxpayers have a household income of $74,580 per year, so $3,240 / $74,850 = 4.33%. Top quartile taxpayers have a household income of $150,000 per year, so $4,700 / $150,000 = 3.1%. Finally, top 1% taxpayers have a household income of $540,000, so $45,000 / $540,000 = 8.33%.