Since this past Monday was the deadline for filing, I thought it would be appropriate to talk a little bit about taxes. Interestingly, according to research of IRS records by the non-partisan Tax Policy Center, 45 percent of American households pay no federal income tax. That comes to about 77.5 million households. These households, of course, don’t escape taxes completely because they have to pay their state taxes and their payroll taxes help fund Social Security and Medicare, but nonetheless, they have no federal tax burden. Roberton C. Williams, a senior fellow at the Tax Policy Center, told MarketWatch.com that half of those households had no taxable income and the other half received enough tax breaks to defray their tax liability. This does seem a little counterintuitive to me. Each month, the Obama administration trots out the latests jobs numbers. Most recently, we were told that more than 9 million jobs have been created since 2010. Obama himself said: “As we better train our workers, we need the new economy to keep churning out high-wage jobs for our workers to fill. Since 2010, America has put more people back to work than Europe, Japan and all advanced economies combined.” That’s probably overbaked and in need of fact checking, but for the sake of argument, I will concede the point. The percent of households paying no federal income tax has been bouncing around between 45 and 47 percent since 2009. So, explain to me why, with all these additional households working and drawing a paycheck, there are still so many people paying no income tax. So who is paying taxes? Rich people paying little in the way of income taxes makes lots of headlines and is fodder for Democrats on the campaign trail. And it’s true that some rich people do manage to avoid income taxes. Normally, it’s by virtue of the way they make money – investment income, instead of labor – or because of inheritances, trusts or offshore bank accounts. But these are the exceptions. Generally, the top 1 percent of earners pay a higher effective tax rate than any other group. That only makes sense, given the progressive nature of the tax code. The effect tax rate, by the way, is the rate you actually pay after all the deductions and exemptions. Their rate is around 23 percent. That rate is roughly seven times higher than those in the bottom 50 percent. On average, those in the bottom 40 percent of earners wind up in a negative tax situation, meaning they end up getting money from the government. On the other hand, the top 20 percent of earners pay the most in income taxes, accounting for nearly 87 percent of all the tax collected by the government. Broken down by quintiles, the following little chart lists the income level, share of total tax revenue, and average income tax bill. Lowest 20% – 2.2% – $643 2nd low 20% –1.7% – $621 Middle 20% 4.2% – $1,743 2nd top 20% – 12.9% – $6,285 Top 20% – 86.8% – $50,176 This translates into the top 1 percent of earners, who have an average income of more than $2.1 million, are responsible for 43.6 percent of all federal individual income tax collected by the government. The top 0.1 percent of earners comprises 115,000 households and their income is more than $9.4 million. They account for 20 percent of all taxes collected. This is why it’s hard for me to understand the notion of taxing the rich. I suppose one could argue that they can afford to be taxed even more. But one could also argue that they already are shouldering the majority of the tax buren, I also think taxing the rich as a means of funding new programs is a fool’s errand. Let’s just say, for example, we took 100 percent of the adjusted gross income of the top 1 percent of earners. That’s right. Just confiscate every dime they made. That would be roughly $1.5 trillion. Last year’s budget was $3.7 trillion. So when politicians talk about raising taxes to fund their programs, their math usually doesn’t add up. Certainly, raising tax rates will generate revenue, but not at the clip politicians want to spend it. In 2015, the government took in a record $3.3 trillion in revenue and still managed to run a $438 billion dollar deficit. It’s almost comical to listen to politicians propose trillions of dollars in new spending while simultaneously decrying the greedy rich people who they so desperately need to fund their new programs. So what’s the problem here? Is it that we’re taxed too little or is it that the government spends too much? I think we all know the answer.
