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.

Taxes, Taxes, Taxes

The Democrats tell me, "Tax the rich people."

The Republicans tell me, "No new taxes."

It would seem there is no middle ground, no compromise. But I believe that there is a middle ground. I just look at the facts and "loosen" the definition of 'new taxes.'

First, some facts, quoted from Bruce Bartlett at NYTimes.com:

• 46 per cent of tax filers pay no federal income taxes.
• 78,000 households with incomes of $211,000 to $533,000 will pay no income taxes this year.
• 24,000 filers with incomes of $533,000 to $2.2 million will also pay zero.
• 3,000 filers with incomes of over $2.2 million will also pay zero.
• Many households with incomes under the median income could, by foregoing some luxuries, afford to pay a small tax.
• Finally, I read elsewhere that 67% of American Corporations pay no federal taxes--I am sure that not all of those are without profit of some kind.

Let's make it clear: I do not feel the need to extract tax from a household that does not make, or barely makes, sufficient income to house and feed themselves and transport themselves to work. Likewise, I do not believe that a business that lost money, or did not make a net profit before taxes, should be forced to pay. But the folks who are paying their taxes are paying as much as 25%, or more, of their income, and so probably should most of those 105,000 filers who plan to pay none.
I said I want to 'loosen' a definition. By that I mean I do not accept the position of some conservatives that the elimination of an existing tax credit, loophole, or federal subsidy constitutes a new tax. We should be able to eliminate loopholes. A company that makes a multi-million dollar profit after taxes does not need loopholes, tax credits or subsidies to stay in business.
So, as I see it, the middle ground is to close as many as possible loopholes in the code, and eliminate tax credits and federal subsides for businesses that can make a profit without them.
There are 105,00 households and many corporations out there that need to step up and pay their fair share of the federal taxes that are already part of the law. It probably is not enough to balance the budget, but it would help significantly. Our legislative and executive branches of government need to look at it this way, and act accordingly.