A lot of what W and Kerry talk about has to do with taxes.
I keep hearing conflicting stories from those two guys on the idea of tax cuts.
So I thought it might be interesting to find out who really does pay the most taxes in this country.
According to a study by the Congressional Budget Office released in August, the top 1 percent of earners – you know, the wealthy 1 percent – will pay 21.5 percent of the total U.S. tax burden in 2005.
Using 2000 data, the CBO points out that to achieve the top 1 percent, you had to have an average annual income of $1.3 million.
The top 5 percent of earners in the U.S., who averaged $446,000 in 2000, will be shouldering 37.3 percent of the tax burden.
The top 10 percent?
$294,300 and 48.8 percent.
The top 20 percent of earners, the average income of which was $202,000, will pay 64.3 percent of the U.S. tax burden.
And we also hear a lot about the middle class and how it fares in all this.
Well, I won’t try to define middle class.
I really don’t know what that is, as it relates to income, so I will just throw out the numbers.
The numbers are divided into five 20 percent ranges, or “quintiles,” in descending order. The dollar amount is the average annual income of a taxpaying individual or household in that quintile. The percentage is the percent of the total U.S. tax burden shouldered by the taxpayers in that quintile.
1 $202,000 64.3 %
2 $76,600 19%
3 $51,600 10.3%
4 $34,200 5.1%
5 $15,000 1.1%
I guess I don’t really see this as some big problem. It seems about right to me, if not a little top heavy.
All that talk about the middle class carrying the biggest share of the tax burden certainly isn’t borne out by those numbers.
Comes now John Kerry who says that he will raise taxes on those who make more than $200,000 to pay for his health care plan and other neat stuff he wants to bestow upon us.
Apparently Kerry thinks that shouldering 64.3 percent of the tax burden isn’t quite yet enough. The wealthy should pay more.
Is it true, as John Kerry and lots of liberals like to tell us, that the wealthy are a bunch of deadbeats who aren’t paying their fair share and need to be taxed more?
And beyond that, what happens to the total tax picture when you raise taxes on the rich?
Let’s look back 20 years, to 1984, and compare the tax picture then and now.
The top statutory income tax rate had been lowered from 70 percent in 1980 to 50 percent by 1984.
Despite the fact that tax rates on the top 20 percent of earners dropped, those taxpayers saw their share of the total tax burden rise from 55.6 percent of the total tax burden in 1984 to 64.3 in 2005.
The top 10 percent saw their share of the total tax burden increase from 39.3 percent to 50 percent. The top 5 percent raised their share from 28.2 percent to 38.5 percent, and the top 1 percent went up from 14.7 percent to 22.7 percent.
Overall, the poor will pay half as much of the federal tax burden in 2005 as they did in 1984, while the rich will pay about 50 percent more. Those in the middle three quintiles will pay about a third less.
Now, it seems to me this should make the liberals happy. Isn’t that what they want?
A government-sponsored, Robin Hoodesque redistribution of wealth?
Well, I guess, we’re just not quite there yet. We need to take more from those wealthy people.
There are a couple guys who know a lot more about this stuff than I do.
They are Steven Cassou, of the Kansas State University economics department, and Kevin J. Lansing of the Federal Reserve Bank of San Francisco.
They recently completed a study where they found that flattening the marginal tax rate schedule causes most of the economic gains.
Flattening means limiting the disparity of rates between high- and low-income earners.
That explains why tax burdens on the rich actually rose as their tax rates fell over the last 20 years.
This was most prevalent during the 1980s as tax rates were flattened the most.
Check this out. The next little table shows (L to R) the year, the top marginal tax rate and the percentage of total U.S. income tax burden shouldered by the top 1 percent of taxpayers.
1980 70 19
1981 69.125 17.6
1982 50 19
1983 50 20.3
1984 50 21.1
1985 50 21.8
1986 50 25.0
1987 38.5 24.6
1988 28 27.5
1989 28 25.2
1990 28 25.6
See how as the rate goes down, the percentage of tax burden rises? Notice that today’s top rate is 35 percent (up from 1990) and the top 1 percent of earners are responsible for 22.7 percent of the tax burden (down from 1990). Higher rate, lower burden.
So you see, raising tax rates on the rich, as Kerry proposes, would most likely cause the reverse of what he wants. It would end up shifting more of the total tax burden to the poor and middle class.
Talk about your unintended consequences.
I can’t imagine he doesn’t know about this stuff. He’s a smart guy. But it’s just a lot easier and politically advantageous to say you’re gonna sock it to the wealthy.
And we haven’t even discussed the other likely effects of raising taxes on the wealthy – like stifling small business investment and discouraging charitable contributions.
Furthermore, I wish both candidates would stop talking about expensive new government programs.
They need to spend less, not more. We are facing some significant fiscal problems because of ballooning federal deficits.
The problem is not that we are taxed too little. The problem is that government spends too much.
Why can’t politicians ever seem to grasp that one simple concept?