The Rich Pay Way More than their Share

I am not at all sure that the recent extension of Bush tax cuts was good policy. I understand the argument that we shouldn't raise taxes during a period of economic stress, but I wonder whether the stress might not be better addressed by serious attempts to put our fiscal house in order.

That said, the argument from the Left that the rich are being coddled is utter nonsense. The top 1% of income earners in the U.S. pay almost 40% of income taxes. The top 2-5% pay another 20%. That means that 5% of U.S. taxpayers pay more than the other 95% combined. The bottom 50% of earners pays just 3.1% of income taxes.

There are all kinds of things wrong with this. One is that it gives the rich an unfair advantage politically. The 5% who pay 60% of the bill are going to figure out how to leverage that financial weight. They didn't get rich by being stupid. Just ask a nephew in a family in which Grandma controls the fortune.

The other problem is that it conceals the cost of government from most of the voters. If my taxes are going down, why should I care if the cost of government is going up? I should care because those costs have to be paid out of the productive economy. It is the latter that produces all the wealth and all the real jobs. It is too much to ask that each citizen should calculate the cost of a government program in terms of all of its effects on the economy. Maybe he should know what it costs in terms of his or her own tax returns.

At any rate, we need to evaluate tax policy in terms of who actually pays what. In the debate over the tax cut extensions, we certainly weren't doing that.

Comments

[Matt Staab]

Professor:

There is no government in these great United States that suffers from a lack of money. The citizens of said land, do however, suffer from politicians who prostitute themselves and waste far, far too much money. We also all suffer from a government bureaucracy that is simply out of control and knows no restraint. I often ask people who think government needs more money to name me ONE thing any government agency does well and truly needs more money. I have been patiently awaiting a coherent answer.

Someone else paying more taxes will only make our problems worse.

Matt Staab
Sioux Falls

[Bill Fleming]

There is so much more to this than you cover in your overview, KB. Here's a little starter kit.
http://www.slate.com/id/2266025/entry/2266026/

[Donald Pay]

Here is some more information on this. Conservatives leave out half the story. The fact is income disparity is growing, and that accounts fo fact that the rich are paying more in taxes.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3220

"The increase in the share of taxes paid by the wealthy is often cited erroneously as evidence that their tax burden is rising. In reality, the effective federal tax rate for the top 1 percent of households — the percentage of their income that they pay in federal taxes — declined from 33.0 percent of income in 2000 to 29.5 percent in 2007.

The top 1 percent paid a growing share of total taxes chiefly because they received a growing share of total before-tax income: 19.4 percent in 2007, compared to 17.8 percent in 2000. Indeed, the effective tax rate of the top 1 percent of households was lower in 2007 than in any year since 1990, demonstrating beyond a doubt that their tax burdens were decreased, not increased."

[William]

BF,

"Income inequality" is largely a "Red Herring". If we could double the real income of everyone in America tomorrow, if we could double everyone's wealth, everyone in America would be better off but "income inequality" would be even more pronounced than before.

For the most part, "poor" in America is vastly different than "poor" globally and where the most extreme examples of poverty in America are found, it's frequently found in areas where dependence on government is the greatest. Compared to the living conditions many of us grew up in, "the poor" of today are generally better off, at least in the material sense.

The most critical issue regarding poverty, as I see it, is children living in poverty and the two main reasons that American children are poor is their parents don't work full-time and fathers are absent from the home.

The largest segment of the underclass in our society today, is here illegally and their presence serves to undermine opportunities for poor citizens. We can't continue to "import poverty" at the same time we decry "income inequality". A "helot class" or unfree population group cannot, and should not, be sustained. The American poor are those most damaged by an open border and a large presence of illegal workers.

Many of the jobs some people say are "jobs Americans won't do" are the very jobs that our parents did, or we did ourselves when we were growing up.

[caheidelberger]

Donald's rocking on my vibe -- expect a blog post on that theme. What is the "fair share"?

Matt: Space exploration. Hubble telescope. Public education. Medicare and VA health care. Military operations. Law enforcement. Public roads. Libraries. Land grant universities. National parks.

[Donald Pay]

William, we can all agree that liberals have succeeded so far in stopping conservatives from totally dismantling the social safety net. The poor may go through some tough times, including days of hunger and some homelessness from time to time, but we largely have assured that people will not starve to death in the streets. In essence, William, you can thank liberals for the US not being a third world country right now.

What's more important about growing income disparity is not that the poor will die in the streets, but that it generates a society in which there is little potential for any economic improvement in the bottom 50 percent of the population. With wealth concentrating at the top, the vast potential of people at the bottom and the middle has far less chance of being tapped. They become less able to take risks forming small businesses, buying house or cars or appliances. Factories close and good jobs end. Main street decays. Hope dies in the young and crime rates rise. Property values dive. Sounds like what we've been going through the last couple years.

[KB]

Bill: No, there is not "so much more to this than [I] cover in [my]overview." I did not address income inequality or the more general inequality in wealth (including assets). I simply pointed out that the wealthiest 5% percent pay more than half of all income taxes. Maybe they should pay more and maybe not; but the extension of Bush tax cuts for all taxpayers looks rather different when you take these numbers into account than when you don't.

Donald: yes, astoundingly enough, the wealthy can end up paying more in taxes if their income rises even if their tax rate is cut. It may even be the case that they end up paying more because the rate was cut. If the purpose of taxation is to redistribute wealth, then we need to look at the stats you provide. Otherwise, we could hardly make any rational judgments.

If the purpose of taxation is to pay for all those things that Cory mentions, then we need to look at the stats I provide. Maybe we should make the wealthy pay even more. I doubt that the recent extension of Bush tax cuts would make much of a difference either way, but it is hardly the case that extending the cuts to all taxpayers is "immoral", as the Vice President recently said.

[William]

When the "money runs out", the dreams of the "liberals" ends.

The real world has consequences that aren't mitigated by intentions. Results are a much bigger factor.

[Lynn]

And we are seeing the results of the money running out in European countries already, as evidenced by the riots over rising costs of college (England), raising the retirement age (France), and cutting benefits (Greece and Ireland). It might have been the best of intentions when these liberal policies were instituted, but the real world has finally caught up with them when the money is running out, and the result isn't pretty. Oh, and it happened in the US already with unions demonstrating against cuts in employment and benefits in CA and in another state recently (I don't remember which). Margaret Thatcher had the best comment on this truth - "the trouble with socialism is that eventually you run out of other people's money."

[unicorn4711]

I've seen this many times, and I think it simply confuses the issues by focusing on one tax from one level of government by showing only one piece of the complex puzzle that is American Federalism. Rather, I think we should be looking at the whole picture of how we are taxed in various ways by all levels of government in conjunction with what roles each level of government ought to have. Showing just one tax at one level of government distorts the bigger picture; the same trick can be done with other taxes and other levels of government. For example, federal income tax is sharply progressive and the rich are soaked, but what about payroll taxes? The upper limit, I believe, is around $102,000. This means the average South Dakota family making about $50,000 a year pays the payroll tax on their entire salary while who make millions only end up paying the tax on their first $102,000. If I were to put up a similar graph as the above depicting only payroll taxes, I could just as easily argue that the poor are soaked. Then we can consider state taxes, which at least in SD tend to be quite regressive. Sales tax on food, for example, impacts a college student making $8,000 part time in the book store far more than the same tax rate on her professor (assuming both the student and the professor eat about the same amount of food, the proportion of income spend on food and therefore the food tax is far higher for the student than the professor). A graph showing percentage of income going to taxes on food in South Dakota would show South Dakota as a place where the poor are soaked while the rich get to keep their money. Next, I think we need to be willing to reconsider what level of government should be funding what. Obama and other progressives, I believe, would like to see a stronger federal role in education, health care, infrastructure and energy in order to make the US more competitive globally. They are watching bridges collapse in Minneapolis, disaster after disaster in the Gulf, increasing dependency on foreign energy, epic obesity, under achievement in many inner city schools, racial achievement gaps, increasing university costs, and increasing health care costs and conclude that a stronger federal role could improve the problems. To do this, they'll need more federal revenue. Progressives are naturally going to want to use the most progressive tax available to accomplish it, the Federal income tax. I don't think, however, that the debate has to be so narrow. We could also use a less progressive tax such as a national VAT in order to increase the role of federal government. On the conservative side of the equation, we could do the exact opposite and chose a flat or even regressive tax and then decrease the role of federal government (as Mike Huckabee suggested in the 2008 primaries).

[William]

unicorn4711,

Removing the cap on the payroll tax is possible but I doubt adding a VAT is politically feasible. Expect a flat tax, or "fair tax", to be a prominent topic in the 2012 campaigns.

[Jimi]

Donald,

"The increase in the share of taxes paid by the wealthy is often cited erroneously as evidence that their tax burden is rising. In reality, the effective federal tax rate for the top 1 percent of households — the percentage of their income that they pay in federal taxes — declined from 33.0 percent of income in 2000 to 29.5 percent in 2007."

The reason the "percentage" of their income paid in taxes declined...is because they made more money....how is that a bad thing? What your trying to say is the same ole...same ole game the left has been playing for years, and that is the denial that the net effect was a "INCREASE" of federal revenue. Look it up for yourself....every year since the tax cuts went into effect the federal government made more money that the year before it up until the crash....the issue is the spending not the revenue. But people like you refuse to face the reality because really all you want to do is participate in Class Warfare.

[Donald Pay]

Jimi, if I make more money because I'm a successful at buying influence among the DC elite, that really isn't a good thing, is it?

[William]

Donald,

Not all wealth is held by "crony capitalists", nor is anyone defending them. Are you suggesting that the only way to become wealthy in America is to buy influence?

[Jimi]

Donald,

There is no question that "crony capitalism" is not acceptable. But the fact of the matter is that the majority of the wealthy in America have worked very hard for that wealth, and do not use that wealth in the crony capitalism game.

The big question that needs to be answered is, "What is the goal your trying to achieve?" The way I see it, the Class Warfare game is not about income inequality, it is a blatant attack on the Free-Market System itself. Trust me....if you take away my incentive to work hard, become wealthy for doing so, so that I have the ablity to leave my kids financial stability and a "free will" lifestyle, then I will take the path of least resistance and change my demographic status from "Producer" to "Taker." Enough of us do that, and freedom will be a cog in the wheel of history!

The left is destroying my will to maintain my "producer" status by trying to make me carry more people on my back than my knees can handle. I want to be lazy just like they do, but I have the ability to recognize that life is difficult, and I keep pressing forward, Why?....All in the name of the dream that I will be able to use the fruits of my labor to advance my family tree to a position of financial stability while living a "free-will" lifestyle.

[Donald Pay]

How hard have the Walton kids for those billions?

Ron Johnson, (R-plastic millionaire) married his money, then he got federal and local governments to lend him lots of money to expand. With his government-generated wealth he bought himself Wisconsin's Senate seat by decrying the very taxes that went to make him wealthy.

People who do the work, produce the wealth. The corporate creeps that you hold up as a "producer" are theives who steal the wealth from the rightful owners.

[William]

Good Grief Donald, we've all agreed with you that CRONY capitalism is bad (want to talk about GE, AIG, Goldman Sachs, etc). I don't mind debating disagreements, but when you have to resort to attacking us for positions we explicitly DON'T hold, you're not really helping your credibility.

BTW, when's the last time you worked 12 hour shifts as a machine operator, as Ron Johnson did in the early days at his company? If you're arguing that Federal, State and local government should NOT promote business growth and development, then that's an issue for another day. I know of nothing in his background that justifies your stating he stole "the wealth from the rightful owners".

[Donald Pay]

I don't know if Johnson worked 12 hour shifts. I've worked 30 hours straight and 100 hour weeks. Johnson's campaign put out a lot of myths about his company, so that one about him working 12 hour shifts could be a campaign ad. It's been documented that he used prison labor and that he counts on state government to provide health care to some of his employees. When he got to DC, by the way, he held fundraisers with all the K-Street lobbyists and other special interests to retire the campaign debt he owed to himself. In other words he's taking bribes.

[William]

Proof, Donald, proof...

First off, even his opponents didn't contest he worked as a "laborer" in his business with 12 hour shifts as a "start up".

What is wrong with "prison labor"? Should the incarcerated NOT have productive work? (FWIW, What "prison labor are you referring to, I'm not aware of any).

WHAT WISCONSIN STATE GOVERNMENT PROGRAM provides health care to his workers? Don't ALL business pay for this?

The "K Street" boogie man is nothing more that ranting about conservative lobbying. I doubt you complain against the same when Democrats are in power.

[unicorn4711]

Why is a VAT off the table politically? I'm not sure whether it is good long-term policy, but doesn't it at least make some sense to tax purchasing rather than income? To the extent that taxing something decreases one's likelihood of doing something, doesn't it make sense to tax income as little as possible and tax consumption of things--especially things we don't need--as much as possible? Are we that much a society of consumers that we can't even begin to talk about taxing our consumption?

[Jimi]

Unicorn,

The VAT is not a true consumption tax. It will cause massive inflation. Taxing consumption is fine, because the wealthiest among us will probably pay the most in taxes. The VAT is a problem because it will interfere directly with the most basic prinicples of the Free-Market System, in that, it makes it that much harder for small buisness to survive, and for the entry level beginner to get started....it will result with the larger corporation controlling even more of the pie.

For the economy to grow, consuption must increase, the VAT promotes a decrese in consumption.

[Sugeng]

that as per new CBDT rules,a salaried empeoyle whose total income is less than rs.5lakh need not submit his IT return.1. But then how will the tax payable be determined?2. If it is determined on the basis of TDS certificates, won't the tax be lesser as the TDS rates are less ?

[Mita]

Yes. Ins premium, dotcor visits, prescription drugs, contact lenses, and necessarily surgery or purchases are deductible. Over the counter drugs and unnecessarily surgery like boob jobs are not.You add them all up, substract any medical reimb and thats your medical tax deduction. but it is limited to 7.5% of your Adjusted Gross Income (which is your income adjustments), so if you make too much money you most likely cant take the benefit. If you want to save more money, add in you over the counter drugs.