I’m sick & tired of politicians, pundits, and “average joe’s” invoking the term “Taxpayer” in their mostly uninformed rhetoric. You know what I’m talking about: “The Taxpayers are angry about bank bailouts,” or better, things like “The Banksters are getting rich at the expense of The Taxpayers.”
First of all, 40% of Americans pay ZERO Federal Income Tax (some even get net subsidies!), so right off the bat, almost half of Americans need to seriously shut their traps & do a little research before whining about fairness of U.S. Tax (etc) policy.
The half and mis-truths propagated by The Ignorati don’t stop there, though. Not even close…
Photo: Stone Street Advisors
The top 25% of earners pay almost 87% of Federal Income Tax! And that was in 2007, I doubt that number has gotten any smaller in subsequent years.
Put this another way, the lower 75% of earners only pay less than 14% of Federal Income Taxes even though they account for ~31% of income. Those in the top 1%, by comparison, earn ~23% of income but pay over 40% of Federal Income Taxes, an increase in the tax burden on the top 1% of 57% over the past 20 years.
The top 0.1% accounts for half of the money earned by the top 1%, i.e. the VERY rich are and have been getting richer faster than the merely wealthy, who themselves are getting more wealthy, faster, than those in the top 10 and 25%’s. Income’s at the top are increasing faster than those on lower income rungs of the income ladder(and this is just looking at the top 25%!)
This is not necessarily a surprise, though, considering the shifts in the U.S. Economy and labour force adjustments (or lack thereof).
Is it “fair” that the top 0.1% of earners pay over 20% of the taxes? Is it fair that the 75% of filers making less than $32,095 (the lowest income in the top 25% in 2007) a year only pay 14% of taxes, yet are disproportionally the recipients of Government aid programs? I think the answer to both is probably far closer to “no” rather than “yes.”
For example, wouldn’t it make more sense to decreases taxes on “the poor” so they would be able to keep more of their $ rather than giving it to the Government to waste on a grossly-inefficient bureaucracy with a questionable (if not downright poor) track-record of allocating capital efficiently?
Unless you think the majority of people in the lower 75% are worse at allocating their money than the Government, I think one would be hard-pressed to advocate against such a plan (and if you think that, then you are an even bigger cynical bastard than your humble yet cynical author, which would be truly sad).
Sure, $32,000/year doesn’t go very far in Manhattan or wealthy suburbs, but I just checked online, and you can get a 2,000+ sqft 3bed/2+bath pretty new construction home in Henderson, NV (right next to Las Vegas) for less than $200,000, which works out to a monthly payment of under $1,000, below the “spend less than 50% of your post-tax income on housing rule.”
Not a bad way to live without breaking the bank (assuming conservative other spending, no Partridge sized family, etc) even on such a low income, eh? People in 2nd/3rd world countries would seriously KILL to live like that!
$30,000/year may seem like an absolute pittance, especially when compared to the incomes of those in the top 1% & higher, but unless you insist on living in Manhattan, Miami Beach, Beverly Hills, etc, you can still live better than 99.99% of the World’s population. The Bottom half in China lives in a 500 sqft piece of crap shanty where they’re lucky if they have a 20-year old TV let alone a new 42″ flatscreen LCD you got on super-saver-sale from Wal-Mart on Black Friday.
Sure, you can’t live in a 5th Ave Penthouse or on the Beach in Malibu on $30,000/year, but please, unless you have 30 kids and spend all your money on crap you don’t need, you are hardly destitute (and if you do, that’s your own damned fault!).
Our tax code/policy is disgustingly over-complicated and wrought with all manner of perverse incentive. Should those who make alot of money be expected to help the plight of those who make very little? Sure, to a point, but as it stands now, I think the subsidies from the “rich” to the “poor” are both too many and too much. Of course, we could similarly criticise the subsidies “the rich” (and businesses) are granted in the form of generous and plentiful tax deductions, but that’s a much longer discussion for another time.
Here’s what’s certain: Over the past 20 years (well, ’86-’07), GDP has increased 3.02%/year and has been positive for every year except once, in 1991, and even then, it was only -0.23%. Meanwhile, average tax rates for the top 1%, 10%, and 25% have gone down on average 1.64%, 0.79%, and 0.67% respectively over this period.
Chew on that: When we cut taxes, we experienced significant economic growth, +87% GDP from 1986-2007. Many have argued that this # would be even higher if “The Rich” (usually arbitrarily defined as those who make more than $200,000 or $250,000) were taxed more heavily based on comparisons to prior periods when taxes and GDP growth were higher.
Most of these comparisons are false, in that they ignore fundamental shifts in reality. Our economy, population, and relative standing in the world today (to say nothing of any # of other variables) is NOTHING like it was generations ago, so any fair comparison would have to somehow adjust for this, and I’m not entirely sure that’s even possible (or how one would go about doing so if it were).
Are tax rates at their optimal point to maximise economic growth? I’m not sure, nor am I’m sure anyone else knows what that optimal tax rates would be. Unfortunately, even economists (who should know better than to let their politics inform their analysis) not to mention pundits and politicians are really just political ideologues sputtering-forth nonsense that’s seldom anywhere close to well-informed.