"The Rich Should Pay Their Fair Share"

[cb7010]

I saw the chart below, which is supposed to be from IRS numbers in 2008. I also keep hearing on the news that the "rich" should have to pay their fair share as a way to get us out of the debt/deficit crisis. From the data alone, it would seem to me that this is already happening and how much more progressive can we get with the tax code and still have some semblence of an "ownership" culture in this country?

And, I know that our tax code has a host of special interest sponsored loopholes that I think should be cleaned up. But, even with those and a couple high profile examples of rich people or companies using them to their advantage, the numbers don't lie. The rich people in this country pay for the bulk of the costs already and still seem to get villified as being greedy and selfish.

What do you think? Are the rich under or over taxed and is this rhetoric we hear a ligitimate strategy or just political trumpeting?

The top 5% of all taxpayers (income split on this group was at $159,619 in 2008) paid 58.72% of all federal individual income taxes in 2008.


Let's continue to break this down:

Top 10% (Income Split Point $113,799) Paid 69.94% of Federal Individual Income Taxes
Top 25% (Income Split Point $67,280) Paid 86.34% of Federal Individual Income Taxes
Top 50% (Income Split Point $33,048) Paid 97.30% of Federal Individual Income Taxes
Bottom 50% (Anyone Making Less Than $33,048) Paid 2.7% of Federal Individual Income Taxes

 

[Danmar]

As a percentage of GDP the US has very low taxes compared to other OECD countries. It is true however that wealthy Americans pay a high proportion of these relatively low taxes.

 

[calmloki]

Many ways to view things - here is a different report: Who Rules America: Wealth, Income, and Power

"Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007)".

Of course these could be pinko professors reporting from an ivory tower, but information can be gleaned from almost anything - they have for instance a very clear exposition on wealth and home ownership; something the board chases around on a regular basis:

"First, though, some definitions. Generally speaking, wealth is the value of everything a person or family owns, minus any debts. However, for purposes of studying the wealth distribution, economists define wealth in terms of marketable assets, such as real estate, stocks, and bonds, leaving aside consumer durables like cars and household items because they are not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale (see Wolff, 2004, p. 4, for a full discussion of these issues). Once the value of all marketable assets is determined, then all debts, such as home mortgages and credit card debts, are subtracted, which yields a person's net worth. In addition, economists use the concept of financial wealth -- also referred to in this document as "non-home wealth" -- which is defined as net worth minus net equity in owner-occupied housing. As Wolff (2004, p. 5) explains, "Financial wealth is a more 'liquid' concept than marketable wealth, since one's home is difficult to convert into cash in the short term. It thus reflects the resources that may be immediately available for consumption or various forms of investments." We also need to distinguish wealth from income. Income is what people earn from work, but also from dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income. (But it's important to note that for the rich, most of that income does not come from "working": in 2008, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries. See Norris, 2010, for more details.)"

Figure 6: Share of income paid as tax, including local and state tax

Source: Citizens for Tax Justice (2010a).
I'll save my sympathy for the poor rather than the rich.

 

[GregLee]

The rich people in this country pay for the bulk of the costs already and still seem to get villified as being greedy and selfish.

What does the one thing have to do with the other? If the rich do pay the most, how does that prove they're not greedy and selfish?

 

[Hamlet]

Federal income taxes are fairly small portion of the total taxes paid in this country. They are also one of the only progressive taxes.

When you look at the total picture, including FICA and state taxes (which are regressive), the tax situation is not nearly as progressive.

I'm not neccessarily arguing for a massive increase in progressivity-- I'm just trying to point out that this narrative that the rich are overtaxed while everyone else gets by scott free is bull.

I saw the chart below, which is supposed to be from IRS numbers in 2008. I also keep hearing on the news that the "rich" should have to pay their fair share as a way to get us out of the debt/deficit crisis. From the data alone, it would seem to me that this is already happening and how much more progressive can we get with the tax code and still have some semblence of an "ownership" culture in this country?

And, I know that our tax code has a host of special interest sponsored loopholes that I think should be cleaned up. But, even with those and a couple high profile examples of rich people or companies using them to their advantage, the numbers don't lie. The rich people in this country pay for the bulk of the costs already and still seem to get villified as being greedy and selfish.

What do you think? Are the rich under or over taxed and is this rhetoric we hear a ligitimate strategy or just political trumpeting?

The top 5% of all taxpayers (income split on this group was at $159,619 in 2008) paid 58.72% of all federal individual income taxes in 2008.


Let's continue to break this down:

Top 10% (Income Split Point $113,799) Paid 69.94% of Federal Individual Income Taxes
Top 25% (Income Split Point $67,280) Paid 86.34% of Federal Individual Income Taxes
Top 50% (Income Split Point $33,048) Paid 97.30% of Federal Individual Income Taxes
Bottom 50% (Anyone Making Less Than $33,048) Paid 2.7% of Federal Individual Income Taxes

 

[scrabbler1]

Federal income taxes are fairly small portion of the total taxes paid in this country. They are also one of the only progressive taxes.

When you look at the total picture, including FICA and state taxes (which are regressive), the tax situation is not nearly as progressive.

I'm not neccessarily arguing for a massive increase in progressivity-- I'm just trying to point out that this narrative that the rich are overtaxed while everyone else gets by scott free is bull.

I recall watching an episode of "Firing Line" back in 1995 in which one of hte panelists stated that the overall tax system is roughly flat, mainly becasue the progressivity of the federal income tax system is offsetted by the regressivity of other taxes such as sales taxes and property taxes. State income taxes vary between mildly progressive and more progressive (back then, at least).

After that episode aired, I decided to test this on my own overall tax bite as a percentage of income. Using only those taxes I could easily quantify (income, FICA, and property taxes), my overall tax bite was fairly flat in the 10 years (at the time) I had been working. Since 1995, that overall tax bite had remained remarkably consistent, within a pretty tight range. The biggest things which moved the overall percentage were other items such as refinancing and later paying off my mortgage. Not even my total wage income tripling in my first 15 years of working had any big effect because my property taxes as a percentage of my income dropped as my income taxes as a percentage of my income rose.

But a key point made by that panelist on that "Firing Line" show was that if you make the federal income tax system less or non progressive (i.e. Flat Tax, a much-discussed proposal in late 1995 when Steve Forbes was running for the GOP nomination), you lose the biggest progressive element which cancels out the regressive elements of the overall tax code, making the overall system regressive.

 

[youbet]

When you look at the total picture, including FICA and state taxes (which are regressive).......

Actually, some states have no income tax at all. Others have flat income tax rates. And others have progressive (some very progressive) income tax rates. Your implication that ALL states have regressive income taxes is bull (to use your phrase).

 

[Hamlet]

Bingo. There is no real way to avoid having State taxes be regressive. A state income tax is easily avoided by the very rich, as they can just mantain a residence in a state with no income tax.

Ultimately, state taxes are going to be primarily supported by sales and property taxes, with income taxes almost always being secondary. States that try to make an income tax their primary revenue source almost always have issues with the wealthy living there but establishing "residency" elsewhere.

The Federal income tax can be progressive because it is much harder to flee the US's tax jurisdiction (although at the highest levels that is coming).

Looking at just the Federal income tax as the picture of tax payment in this country is very deceptive.

But a key point made by that panelist on that "Firing Line" show was that if you make the federal income tax system less or non progressive (i.e. Flat Tax, a much-discussed proposal in late 1995 when Steve Forbes was running for the GOP nomination), you lose the biggest progressive element which cancels out the regressive elements of the overall tax code, making the overall system regressive.

 

[eridanus]

What do you think? Are the rich under or over taxed and is this rhetoric we hear a ligitimate strategy or just political trumpeting?

The top 5% of all taxpayers (income split on this group was at $159,619 in 2008) paid 58.72% of all federal individual income taxes in 2008.

Is this an indication that the rich pay too much in income taxes or an indication that the rich make much, much, more income than the other 95%?

 

[winger]

Bingo. There is no real way to avoid having State taxes be regressive. A state income tax is easily avoided by the very rich, as they can just maintain a residence in a state with no income tax.

You don't need to be rich to do this. We have an address in Texas (no state income tax) and are spending this summer in Oregon ( no sales tax). It was time to replace a few expensive items, and we will save a little money.

Most full time RVers end up with an address in a no income tax state.

And for those of you ready to call me a thief, I've lived in Texas since 82, and my wife was born and lived there all her life.

 

[plex]

I would lean towards the initial statistics indicating those in the top 5% have very high incomes, rather than being taxed heavily, since we have income taxes on par only with 3rd world countries.

Another problem with the statistics that make them confusing is defining "rich," as those with high incomes. Much less than even half of those who ever been in the top 5% for income ended up staying in the top 5% for the majority of their lives. I would not be surprised if only 1% of those who made it into the top 5%, had been there for half their lives (e.g. 40-45 years), or in other words 0.05% of the country. That means 99.95% of people are not taxed at the top 5% bracket for a majority of their lives, instead they are taxed in the lower brackets, quite often in bottom 50% bracket that pays no income taxes.

Most people become "wealthy" in one way or another, but most people certainly do not become "rich" in one way or another, not even 1% of people really become "rich" for most of their lives using this less than useful definition.

 

[zinger1457]

The tax cuts seem to have helped one group more than others:

 

[Hamlet]

Yup. Ultimately, states that rely too heavily on income taxes end up having a tough time paying the bills, since it is fairly easy to establish residency somewhere else (see California).

The free movement of people between States in our country drives the State tax systems to be regressive in nature.

Which is one good reason why the Federal income tax should stay progressive, IMO (the other is FICA).

You don't need to be rich to do this. We have an address in Texas (no state income tax) and are spending this summer in Oregon ( no sales tax). It was time to replace a few expensive items, and we will save a little money.

Most full time RVers end up with an address in a no income tax state.

 

[ERD50]

I will say that I think the curve should be altered. In fact, it should be a real curve, rather than a few brackets. A joint $250,000 income in a high cost of living area is just vastly different from a joint $2,500,000 or $25,000,000 income anywhere. Why (if we are to have progressive rates at all) tax them at the same rate?

Yes, technically, only the marginal $ above that point are taxed at that rate, so that builds in a bit of a curve. But on principal, I think there should be some simple formula to increase the % as the income increases.

But if you do the math, I don't think it'll help that much. You can only go so far, and there are only so many 'rich' people.

Is this an indication that the rich pay too much in income taxes or an indication that the rich make much, much, more income than the other 95%?

Why shouldn't they make much, much more? I bet the people who got much, much better grades in school generally worked much, much harder and/or had much, much more natural ability.

It's just no fair that Micheal Jordon made all that money by becoming famous playing basketball. I wasn't born with that ability, and no matter how hard I tried I could never develop that talent. We can't let the top 1% performers act like that. I should be given some kind of a handicap as they do in golf, and allowed to compete with the best and not be made to feel bad, and get the same product endorsement opportunities as the top performers. We should let the kids who flunked high school run major corporations, yeah, that's the ticket!


-ERD50

 

[FIREd]

I have been tracking income and taxes paid since 2005. Since 2005, I have lived in the same state and in the same house (with the same mortgage). My spousal and parental statuses have not changed. Our expenses have been pretty flat during that time period. But our gross income has increased 3.5 times. This is how our overall tax burden has changed over time:

All numbers from Quicken.

Note: I have not included taxes and fees that are harder to track (gas tax, sin tax, federal fees, etc...). Those tend to be regressive, so my graph is probably skewed slightly to the progressive side.

 

[eridanus]

Why shouldn't they make much, much more? I bet the people who got much, much better grades in school generally worked much, much harder and/or had much, much more natural ability.

<rant deleted>

-ERD50

Who said they shouldn't make much, much, more? What are you going on about?

 

[Hamlet]

That's pretty much what I would expect to see.

The total tax burden for most people is somewhat, but not dramatically progressive. Note that if you had included the employer's half of FICA it might actually be regressive.

I have been tracking income and taxes paid since 2005. Since 2005, I have lived in the same state and in the same house (with the same mortgage). My spousal and parental statuses have not changed. Our expenses have been pretty flat during that time period. But our gross income has increased 3.5 times. This is how our overall tax burden has changed over time:

All numbers from Quicken.

Note 1: I have not included taxes and fees that are harder to track (gas tax, sin tax, federal fees, etc...). Those tend to be regressive, so my graph is probably skewed slightly to the progressive side.

 

[ERD50]

Who said they shouldn't make much, much, more? What are you going on about?

That is generally the context that statement is delivered in. If you didn't intend it that way, just ignore my rant. But it can stand for anyone who did read it that way .

-ERD50

 

[BigNick]

The relevant factor is not the % of the total tax take paid by some arbitrary group; it's the % of their wealth paid by each person as a function of their wealth. People earning $2 million/year can afford to pay a bigger % in taxes than people making $200K or $20K.

I wouldn't call anyone "rich" purely on the basis of making $160K/year. Let's see the figures for the 95th, 96th, 97th, etc percentile.

 

[chinaco]

...
"Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts ...

Two things happened in the Reagan Administration (1980s). General Tax Cuts and a Fix to SS (increase in FICA payments). But continued heavy spending... remember star wars... and then as the years progressed everything else. Since general taxes were cut, thereby reducing money to spend on govt programs (other than SS and Medicare) and FICA was increased to keep SS and Medicare solvent, thus generating a surplus. That surplus was spent to cover spending for those tax cuts!

While we often hear about wealth transfer... when politicians speak about taxes... The govt, in effect transferred that $2.5 T (of FICA funds) into the pockets of the most wealthy in this country. How did that happen? The govt spent FICA instead of raising the funding through normal taxation!


Now that those funds (FICA) need to be paid back... and all the other stuff still has to be paid for... the wealthy and many corporations (through their lobbyist) are fighting it tooth and nail. And what do we hear.... raising taxes would be a transfer of wealth from the wealthy to the middle class.


Indeed... there was a transfer of wealth.... about $2.5T. The middle class got scr3wed and it is likely to keep happening!

 

[Gatordoc50]

Is this an indication that the rich pay too much in income taxes or an indication that the rich make much, much, more income than the other 95%?

Perhaps we should not focus on what people make but rather what they spend. Frugal people have learned to live on less and therefore should pay more in taxes. Otherwise they just retire early and take up space.

 

[mb]

I think that a couple of other numbers are relevant to this discussion. I calculate that

(1) The top 10% earn 46% of all income.
(2) After taxes the top 10% still retain 42% of all after tax income.

Thus at the risk of being obvious high earners make a lot of money, pay a lot of taxes but still retain a lot of their money.

Qualitatively I think that is "fair."

High earners can afford to pay a greater percent of their income as taxes but also deserve to retain a significant part of their earnings. (How's that for hedging?)

I think that the purpose of taxes is to fund government services not equalize income. (Some of my more liberal friends disagree.)

Quantitatively, it is obviously a much more difficult and a much more contentious decision. How progressive should taxes be? What is fair? There isn't a right or wrong answer as far as I can tell.

I strongly agree with the comment that we should use a continuous equation for tax rate as a function of income (along with greatly simplifying the tax code) rather than brackets. I have always thought that the reason we don't do that is because most politicians are lawyers and most lawyers don't take a lot of math.

But my basic take on this is that taxes are not our basic problem. Government spending is not our basic problem. The problem is the difference between taxes and government spending.

To fix this I think that spending has to go down and taxes have to go up. As a start I would consider:

(1) Allowing the Bush tax cuts to expire for all brackets. (I'm in the top % or 2 of earners and have saved a lot of tax money because of this in the last decade. Obviously this is probably not a great time to do it.)

(2) Significant entitlement cuts (Medicare Part D ?)

(3) Significant (say 25%) defense spending cuts (We currently spend as much money on defense as the next 20 countries in the world combined.)

 

[MasterBlaster]

As a percentage of GDP the US has very low taxes compared to other OECD countries. It is true however that wealthy Americans pay a high proportion of these relatively low taxes.

You have bought into someone's talking points here. There may be some truth to it concerning income taxes looked at in a vaccuum.

But, When you look at the "all-in" tax level on Americans that includes payroll, state, local, property, sales taxes, capital gains, estate taxes (and so on), the tax rates on Americans isn't so low.

 

[eridanus]

Perhaps we should not focus on what people make but rather what they spend. Frugal people have learned to live on less and therefore should pay more in taxes. Otherwise they just retire early and take up space.

Continue reading what I wrote until you grok it. It has nothing to do with socialism or whatever other demons keep you up at night.

(The statistic is misleading. It's trying to connect the total take that the rich pay -- 58% -- with what the rich pay individually. Those are 2 different numbers. It's similar to looking at the average pay of a hedge fund trader and a burger flipper and then assuming that they're both rich because the average pay is $260,000.)

 

[devans0]

Two of the huge shocks that I received as I learned to invest was first the huge extent of corporate tax exemptions in various well connected industries, and second, how little investors and businesses can pay after write offs. I really feel like a schmuck that was taken when I look at my tax bites well North of forty five percent for most of my working life and compare the differences.
I don't have sympathy for investors paying more in taxes, not until they meet my percentages in taxes, and IMO they rake in the benefits for corporate welfare. Nor do I have sympathy for poor. I witness too many instances of people gaming the system to avoid work.
I know that many poor need and deserve the breaks, but honestly, when I see the hoops that able bodied people are willing to go to to avoid work, I can only go into old guy rants about what this world is coming to.
We joke in this forum about work being a four letter word, but there are people that really live their lives that way. Politics has reduced itself to become class warfare. This latest razing (intended) the debt limit put me in rant mode.
Am I wrong to feel that I and workers like me, are bearing too high percentage in taxes or are people here paying more and I am simply feeling sorry for myself for being in the same boat as everyone else?