Shining Some Truth On Taxes

The class warfare rhetoric has stepped up to front and center this week, with the president saying, "if asking the rich to pay their fair share is class warfare, I accept that".  Since the call for the Buffet Rule when the "American Jobs Act" was released (ever notice how bills are always named the exact opposite of what they do?) tax "fairness" has been bandied about in a virtually 100% fact free tone. 

Mr. President, if the secretary and Warren Buffet pay the same tax, that's a flat tax.  I really doubt that's what you want, but if you do, I could be on your side (assuming you don't want a flat 100% rate).  As Kerodin and others say (I agree), if it's wrong that Buffet pays 15% on capital gains while his secretary pays 35% on ordinary income, let's drop her tax rate to 15%, too.  Of course, in reality and as you readers know, Buffet is paying tax on income from money that was already taxed at around 35%, so he's paying closer to 50% tax.  But let's not let facts get in the way of good story, shall we? 

It was reported this summer  that we have crossed an economic Rubicon: more than half the population pays no tax (federal income tax, that is).

"But right now, the fact (is) that according to the Committee on Joint Taxation, 51 percent -- that is, a majority of American households -- paid no income tax in 2009. Zero. Zip. Nada. … Actually, to show how out of whack things have gotten, 30 percent of American households actually made money from the tax system by way of refundable tax credits -- the Earned Income Tax Credit, among others. So 51 percent of American households paid no income tax in 2009, but 30 percent actually made money under the current system." (emphasis added - GB)

Mind-bogglingly, Zerohedge wrote last March (and I covered with more details) about these 30 percent who make a profit off the tax system that "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.  And if that wasn't enough, here is one that will blow your mind:

"If the family provider works only one week a month at minimum wage, he or she makes 92 percent as much as a provider grossing $60,000 a year."

The fate of the country is sealed, assuming the 51% of the population who pay no taxes shows up for every election, the percentage of people paying income tax will go down until the country collapses.  If it hasn't already, anyway.

It is fundamental evil party talking point, parroted in this BS Footprint link by Elizabeth Warren, that the Bush tax cuts for the rich cost us trillions of dollars.  A few minutes of internet research will show that on a percentage basis, the lowest income brackets benefited more from those tax cuts than the rich.  We'll surely fix things by letting them expire in 2013, right?

The current six rate brackets of 10%, 15%, 25%, 28%, 33% and 35% will be replaced by five new brackets with the higher rates of 15%, 28%, 31%, 36% and 39.6% 

Note that the lowest bracket tax rate goes from 10% to 15%, or a 50% increase in their taxes.  The highest bracket goes from 35 to 36.9%, or 5.4%.  The lowest income people will be hit the hardest.  In this analysis from the Tax Foundation, you can see how the share of tax liability went up for the top quintile, and down for all of the others under the Bush cuts.

Note that the top quintile pays 81.0% of the entire tax burden of the country. 

Economist Michael Stroup, of Stephen F. Austin State University, has analyzed tax rates and the amount of "progressivity" (that is, the rich pay "progressively" more) of the tax system (pdf here).  The Tax Foundation reports the US has the most progressive system in the world, even more than those European social democracies which the president wants to make us more like.  Stroup presents this interesting plot: 

Here's how the plot works:  Increases in the size of the area between a 45-degree line and the curve (Area A) indicate greater income inequality.  Greater distance between the red and blue curves (Area B) indicate the difference between income and taxation.  The more the red curve is below the blue, the more progressive the tax system:

If everyone paid the same proportion of his income in taxes, the tax curve would lie perfectly on top of the income curve.

If the poor paid a larger share of their income in taxes than the rich, the tax system would be regressive and the tax curve would lie above the income curve.

However, since the rich pay a larger share of their income in taxes than the poor, the tax curve lies below the income curve.

While this is a snapshot for 2004, Stroup writes:

Over time, the share of taxes paid by the rich has grown more than their share of income. For example, between 1986 and 2004:

The income share of the top 1 percent of taxpayers rose 7.7 percentage points, from 11.30 percent to 19 percent of total income.

The share of income taxes paid by the top 1 percent rose even more, by 11 percentage points, from 26 percent to 37 percent of total income taxes paid.

In the years since this was written the percentage of the tax burden paid by the top 1% of earners has increased, to approximately 40%; 42% according to some sources.  The Tax Foundation provides this data:

The simple fact is that every single tax policy change by both parties has led to a more progressive tax, where the rich pay a larger percentage of the tax burden than before.  This has been particularly true for Republican laws like Bush's "Tax Cuts for the Rich" - or Reagan's before him.

The most important reason for the increasing progressivity of income taxes is that virtually every Republican tax bill over the past 25 years has taken more and more people off the tax rolls. Democratic opponents inevitably point to the lowering of the highest tax rates as a “giveaway to the rich.” They conveniently ignore the fact that in lowering the rates, these same tax bills also widened the base. By allowing fewer deductions, exemptions and loop holes, the bills exposed more income to taxation. More importantly, if people at the bottom of the income ladder are completely taken off the tax rolls, the burden of the tax system will shift to those at the top, no matter what rates they pay or what deductions they take.

Getting into discussions with the evil party is a waste of time; they will never tell you what the "fair share" of their income folks should pay.  A couple of weeks ago, congresscritter Jan Schakowsky famously told an interviewer "you don’t deserve to keep all" of what you earn, yet refused to specify how much was fair.  In her world, and all of the evil party, what you earn belongs to society first and they will decide how much you're allowed to keep.

This idea needs to be eradicated.