The tax debate we need to have A shrinking minority of Americans are paying most of Washington's bills. That's not good. By Geoff Colvin, senior editor at large (Fortune Magazine) -- Here's a cold reality that none of the presidential candidates want to tell you: a shrinking number of Americans are bearing an ever bigger share of the nation's income tax burden. Is that fair? Is it sticking the rich with what they deserve? Or is it a sign of a growing social problem? As you file your tax return, and as the candidates cite assorted half-truths about U.S. taxes, those questions are worth our attention - as long as we spurn political spin and face the surprising facts. The first surprise for most people is the large proportion of Americans who don't pay any income tax at all. The number of people who actually get money back - not a refund, but a net payment - through the income tax system, is huge. In 2005 (the most recent year for which data is available), the bottom 40% of Americans by income had, in the aggregate, an effective tax rate that's negative: their households received more money through the income tax system, largely from the earned income tax credit, than they paid. That means that the number of people who actually pay America's income taxes - totaling almost $1 trillion in 2005 - is surprisingly small. Of those who filed returns (themselves a subset of the population), just half accounted for 97% of the Treasury's total income tax revenue. The top half's share of total payments has been growing steadily for the past 20 years. The top 10% of taxpayers kicked in 70% of total income tax. And the famous top 1% paid almost 40% of all income tax, a proportion that has jumped dramatically since 1986. But wait a minute. Senators Hillary Clinton and Barack Obama rail against President Bush's "tax cuts for the rich." How does that square with the growing share of total tax paid by the wealthy? Are the richest Americans paying so much because they're actually getting clobbered with higher tax rates? No. Their effective tax rate - the total tax they pay as a percentage of their income - has declined substantially. The top 1% paid an effective tax rate of 23% in 2005, down from 27.5% in 2001. The rich are getting richer, faster So if the rich are paying more income tax, yet are being taxed at a lower rate, there can be only one explanation: their incomes must be growing fast, much faster than the rest of the population's. That is what's happening. Back in 1986, an income of $119,000 got you into the top 1%. By 2005 it took $365,000 to get into the club. Those numbers are unadjusted for inflation; if you correct them, it turns out the price of admission still rose by a huge 72%. By contrast, the inflation-adjusted definition of a median taxpayer - that is, someone in the 50th percentile - didn't budge. Now consider some of the heated tax controversies of recent years. Did Bush cut taxes for the rich? Yes. But he cut taxes for the poor even more. If we look at the measure that really matters - the change in effective tax rates - the bottom 50% got a much bigger tax cut than the top 1%. Did the dollar value of Bush's tax cuts go mostly to the wealthy? Absolutely. It could hardly be otherwise. Since the well-off pay the overwhelming majority of taxes, any tax cut with a prayer of influencing the economy would have to go mostly to them. You could completely eliminate income taxes for the bottom half of the population, and the Treasury would hardly notice. The real issues here are clear. One is having a shrinking minority of citizens pay most of Washington's bills. Social cohesion falls apart. The majority who pay nothing resent those with higher incomes; the minority who pay heavily resent those who don't pay. More fundamental is why some people's incomes are growing so much faster than other people's incomes. That, and not taxes, is what the supposed tax debate is really about. Watch to see if the candidates make substantive proposals for dealing with the issue, including how low-income citizens can get some of the earning power now going heavily to the better educated, plus how U.S. workers in general can be worth their high cost in a global labor market. It's a lot harder than changing income tax rates. First Published: April 2, 2008: 5:29 AM EDT
As long as the super rich want corporate welfare then they should have to pay a huge share of the tax burden.
With the market not doing so well in 2008 they will find that they already killed the goose that was laying the golden eggs of tax revenue, me thinks. Us "rich folk" will be paying a lot less in taxes than we did in 2007 on average, I bet. Myself, so far it looks like I'll end the year making 1/6th what I made in 2007 if Q1's trends continue, and I bet I'm doing a lot better than your average mutual fund owner. At least I'm MAKING money, LOL.
Great point. Besides that, the middle & lower classes are tapped out. Mass offshoring of jobs, inflation & debt have already crippled them. Meanwhile the rich are capitalizing on the same factors.
None of that is my fault. I'm just as unemployed as the rest of them. The problem is you can raise rates to the moon, and all its going to do is convince more of us to leave rather than be the ones that get dumped on all the time. Like Reagan said, if they don't like it, they will vote with their feet. The solution is to tax consumption, not work
Note that the survey included just INCOME tax. Americans pay other federal taxes as well, and some of these, like Social Security, are regressive.
National sales tax. If you don't live like a king, then you don't get over taxed. Its voluntary. No taxes at all for those under a certain income level. Give em a rebate or something.
We're already toast. If you take the total federal government budget and divide by the number of voters, then compare that to how much they pay in taxes and fees, you'll find that over 90-some% of us don't pay "our fair share". As federal debt runs into the trillions, we're not just soaking the rich guys, we're soaking the taxpayers in the future. The average voter is on the take. We've voted ourselves rich. And that doesn't work. Fortunately both major political parties are concerned about federal debt Unfortunately, both seem to think that's it's too small and they have big plans to increase it even more. Won't be long before we'll start hearing about wealth taxes. It's only a matter of time before the feds start taking a % not of how much you ar emaking, but of how much you have. They'll start it off as a Get Even With Rich Fat Cats scheme, talking about how only the top 1000 people will pay. And like every government program, it'll grow non-stop like an evil plant from a bad science fiction movie. Just think of all the social engineering and lobbying opportunities that will be available under a wealth tax system. Hate SUVs? Tax people who own them. Don't like "McMansions"? Charge a big chunk of their net worth in federal fees. Time to cut down on obesity? Implement a per pound yearly fatso tax. Whether you have a TV that is too big or haven't switched to the new light bulbs, there are few behaviors the feds won't be able to reward or punish. The feds will be able to wave their hands and make or break entire industries. The lobbyists will have to deliver payoffs in armored cars. Democrats will need walk in freezers to hold all their cash.
No surprise. It ALWAYS was the eventual aim of Gummint to "tax us until we have nothing left". We'll end up like the Soviet Union before the collapse.... The top Gummint guys living high off the hog, the next echelon of Gummint lackeys living well, and the rest of us queue-ing up for our weekly ration of toilet paper and potatoes. The Gummint cares not about "what's right and fair"... they care only about getting elected, getting re-elected, exercising power and authority over the people, and lining their pockets from the public purse. (If Thomas Jefferson or Andrew Jackson were alive today, they would PISS ON EVERY FEDERAL POLITICO'S SHOES in ultimate contempt.) It is now and always has been, "Gummint at the EXPENSE of the people". Get used to it!
The Social Security Tax is not regressive because Social Security benefits are highly progressive. Social Security is set up to be the best deal for low income people and the worst deal for high income people. The highly nonlinear Social Security benefits relative to taxes paid make it a borderline welfare program.