Friday, August 10, 2012

Tax the Rich

President Obama and Governor Brown of California want us to increase the Federal and State taxes on the rich people, so that they "pay their fair share."

I have written in the past about the real unfairness of the tax code.  [Taxes, Taxes, Taxes, July 18,  2011] 

For a while, though, I found the "pay their fair share" mantra extremely seductive.  It's easy and attractive to go after the 1%.  It's so attractive that the supporters who ride the "tax the rich bandwagon" either don't bother to check the math, or they don't believe the facts, or they don't want to hear the facts.  If taxing the rich does not solve our governments' debt problems, we will have to come up with more complex and painful solutions.

First, to increase the taxes on the rich will not solve the problem. If we tax the top 1% of our income earners at a rate of 100%, it will not solve our problem.  There are not enough people in the top 1%, and their total annual income would not significantly reduce the debt.

Second, the rich people (with a few notable exceptions) are already paying more than their fair share of taxes:
  • The top 20% of taxpayers earned 51% of the nation's personal income, but in 2009 they paid 68% of the total federal taxes.  That's more than their fair share.
  • The top 1% of taxpayers earned 13% of the income, but paid 29% of all federal taxes.  That's more than twice their fair share.
  • The bottom 20% of taxpayers earned only 5% of the income, but paid only 0.3% of all federal taxes.  That's not a fair share, but most of us concede that the very poorest should not have to bear a tax burden.
Some simple arithmetic shows that the middle 60% of filers earn 44% of the income and pay slightly less than 32% of the taxes.  That's certainly not a fair share, but our politicians are wooing this middle 60% for their votes. 

Remember, too, that 46% of tax filers pay no federal taxes at all.   That's not just poor people.  Almost 7,000 people in the top 1% pay no federal taxes.   Many more of that middle 60% also pay no federal tax as well, but a lot of people are falling hook, line and sinker for the "tax the rich" slogan.

Some people consider taxes just to be a fee for the services the government provides.  If that is the case, then 46% of our people are gettting all those govenment services free of charge, while the rest of us are over-paying for them.

Reducing government spending by itself will not reduce the nation's annual deficit.  Some tax increases will be necessary.  But, like it or not, some of the freeloading 41% will have to chip in, including some of that middle 60% who are not paying their fair share.
 
Our Congressmen don't want to tell us that.  They do not want to propose specific, realistic debt reduction plans.  If they do, we the people won't re-elect them.  So instead, they throw us the "make the rich people pay their fair share" slogan.   Don't fall for it.

Sunday, January 01, 2012

The Top 1%--More Things to Consider

My friends will tell you that I was critical of the top 1% for decades before the Occupiers started their demonstrations.  My previous posts on income taxation discussed the issues to some extent.  We need, however, to observe some facts about how taxation relates to income at the federal level.
  • In The Week magazine I read that people in the top 1% of income earners earned 20.3% of the nation's total income and paid 21% of the nation's income tax.
That would make it seem that the top 1% are paying their "fair share," wouldn't it?  But consider the following:
  • The "income" discussed is reported, adjusted gross income.  We should be aware that the top 1% do not report all of their income, much of which is sheltered in off-shore accounts and received in unreported cash transactions.  In addition, the top 1% find that more of the "adjustments" apply to them than to people whose entire income comes from weekly paychecks.
  • Statistics on income reveal that roughly 7,000 of the top 1% payed no federal income tax at all, even though they received sufficient income to place them in the top 1%.
One of my best friends eases the pain of paying taxes by considering them as "fees for services received."  This approach does not work for me, and here is why:
  • Each of those 7,000 of the top 1% who paid no income tax probably used about the same amount of Federal services as I did, but they got the services free while I had to pay.
  • Each of the 47% of wage earners who paid no income tax used more Federal services than I did.  They collected welfare, food stamps, unempoyment benefits, and medical care, but did not pay for any of the Federal services they received.
  • Count up the taxes:  the top 1% pay 21% of the taxes; the bottom 47% pay 0% of the taxes.  That means the remaining 52% of wage earners are paying 79% of the taxes.  That same remaining 52% do not consume even half of all the Federal services.
So, the people who take the beating are the middle 52% of wage earners.  I am a 52-percenter.  Chances are better than 50-50 that you are a 52 percenter.

Consider, too, that the 435 persons in Washington, D.C. who write and administer our laws are part of the 1%.  They carefully craft and enforce our tax code so that the bottom 47% get a free ride (in return for their votes).  And a good share of the embattled 52%, who are either too uninformed or too busy to figure it out, continue to vote for the politicians who are robbing them blind.

Some relatively simple changes to the tax code could reduce or eliminate these inequities.  Don't count on the representatives we elected in the last few years to do that.  They are too busy feathering their own nests at our expense.

If all of us in the 52% could organize into a political party, we would have a majority of the votes.  We could elect some folks who are willing to make the needed changes.