Wednesday, August 3, 2011

Myth That the Rich Pay Less in Taxes: Part Two

Earlier this spring, I wrote a post about the myth that the rich pay less in taxes and had some really interesting discussions in the comments section. I just don't think that many people 'get' how skewed our tax system is against the rich. Unprovoked, someone sent me this tax table after the recent votes on the debt ceiling and the expiration of the Bush tax cuts. This goes to show you how unequal taxes really are (before the expiration of the Bush tax cuts goes into effect):

As you can see, the top 5% of wage earners, those earning $160,000 in Adgusted Gross Income, pay nearly 59% of all taxes.  The top 25%, those earning $67,280 AGI or more, pay over 86% of all taxes. And this is just for the amended 2008 returns. Look at the chart below to see how 'even' taxes have become over the last nearly 30 years. In 1980 the top 5% were paying 37% of all taxes while the the bottom 50% were paying 7%. Twenty-eight years later the top 5% are paying 59% while the bottom 50% are paying 2.7%.

All these tables can be found here.

So even after seeing these tables and realizing beyond a shadow of a doubt that the richest 25% American's pay way more in taxes than the bottom 75% of us, there will be those that feel that this isn't enough. Those people need to study up on Hauser's law. That law in effect states that no matter how much you tax the rich, the government is only going to bring in about 19% of the Gross Domestic Product in revenues. In essence, taxing the rich more will do nothing to pull us out of this pickle with our national debt that we are in. See the chart below:


Vince said...

As we've see over these last few years dollar values are largely meaningless. While this take on tax is based on willingness to pay instead of ability to pay. And that change between the 80's and to-day where there is a drop from 7% to 2% is the only really useful statistic. Or a drop of 5% in those that have an ability to pay.
Oh, and just to toss a grenade in. There is a point where it costs more to collect tax than the tax itself returns. From my readings there are an entire cohort that are on low wages that should not be within any direct tax net. Where their contribution should be left to sales taxation alone.

Ed said...

Vince - I should have added a conclusion. In the end, I'm not sure what the answer is, only that more taxes is probably not one of them. I do think that our current tax system is way too complex and is stifling the engine responsible for the American Dream. We need to reform it and I'm not sure how. I used to think flat tax but I'm convinced that would bury the poor and add more to their ranks and I'm okay with the concept of paying more because I can afford more. Right now, I think a consumer tax is the best way to go so those that consume more and use more pay more in taxes. The only probably with that is when we make the switch and suddenly you have to pay 25% tax on your cheeseburger, our economy may get kind of ugly for a few years until people adapt.

Ron said...

I just wish our gov't would cut spending. It's is so out-of-control it's ridiculous.

Ed said...

Ron - AMEN!