Do The Rich Pay Their Fair Share Of Taxes?
| May 14, 2010 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Statements such as “the rich don’t pay their taxes” can be misleading because they often ignore factual evidence to the contrary.
Mr. Warren Buffett has been a frequent critic of US tax laws and a proponent for a more progressive tax system. At a 2007 fundraiser, he mentioned…
“[We] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”
Mr. Buffett said that he made $46 million in 2006 and was taxed at 17.7 percent, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 percent. It’s troubling statistics such as these that fuel cries of income inequality and the deterioration of democracy. However, a new paper by Greg Mankiw entitled “Spreading the Wealth Around: Reflections on Joe the Plumber” elucidates a completely different perspective, citing the Congressional Budget Office calculations.
The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent. The richest 1 percent, with an average income of $1,259,700, forks over 31.1 percent of its income to the federal government.
Accordingly, he concludes that it is simply inaccurate to argue that we do not have a progressive tax system and that the “best analysis shows that average federal tax rates rise steeply with income.” The truth is the “lower tax rates” mentioned by Buffett and others often excludes corporate taxes, which would boost the rate significantly (remember double-taxation).
Additionally, consider that nearly 50% of all filers pay nothing in federal income taxes. These non-payers are families with children, the elderly, low income households, those who either have too little income to pay taxes or who benefit enough from all the deductions, credits and exemptions in the income tax, so they’re zeroed out on the bottom line of their 1040.
This leaves the higher income earners and upper middle class paying the bulk of income taxes. Those who earn over $500,000 per year pay about 24% of all US taxes and earn about 16-17% of all income. Those who earn over $100,000 per year pay about 70% of all US taxes and earn about 56% of all income.
Source Of Income Matters…Much
Just because our tax system is progressive doesn’t mean that there aren’t tax-avoidance strategies to shelter income.
If the majority of your income is derived from tax-advantaged sources, then your tax burden can be minimized…drastically. For example, it is estimated that Ross Perot took in $230 million in 1995 but only paid 8.5 percent of that income in taxes. Compare this to the person with an earned income over $259,700, who would pay 31.1 percent in taxes. The Atlanta Journal-Constitution reported that this is because Perot “minimizes his tax bill by investing heavily in tax free municipals, tax-sheltered real estate, and stocks with unrealized gains.”
A more recent example is Frank McCourt, the owner of the L.A. Dodgers. He received a reported $108 million and paid no federal and state taxes because of loss-carry forwards.
The truth is that one of the reasons the super-affluent get into that position is by being masters at minimizing their realized income.
Before You Join the Fleece the Rich Crowd
Attempts to use the government to strip wealth from the rich have often failed miserably and publicly. Consider Maryland as a cautionary tale.
The WSJ article Millionaires Go Missing: Maryland’s fleeced taxpayers fight back details how Maryland failed to balance in budget, so its governor decided that he was going to enact a special millionaire tax to make up the deficit. The projected revenue was supposed to be $106 million. However, after a year, Maryland collected $100 million less than what they collected the previous year. In addition to the incomes of some of Maryland’s high-income tax payers going down (in some cases deliberately), other millionaires simply left the state. It turns out that having a very high income affords one both mobility and control over one’s realized income (if you own your own business). All told, one-third of millionaires disappeared from Maryland’s tax rolls, of which Maryland got 6.25% of nothing. Of course, the same thing happened in New Jersey, yet Oregon still wants to adopt this strategy.
Increased taxes on high income earners can de-incentivize hard work and innovation. It is no fun feeling like you are being punished for getting ahead financially. Additionally, there are plenty of individuals and companies that take tax laws into consideration before deciding on whether to move into a state. Of course, the fatal flaw of a progressive tax code is that it creates an overdependence on the incomes of relatively few. During economic decline, the net worth and incomes of wealthy and rich individuals typically drop more drastically than the general public, so states with more progressive tax systems often suffer severe budgetary deficits.
Lastly, in some parts of the world, you are considered VERY rich. Do you feel like you pay YOUR fair share? While I certainly have nothing but admiration for Mr. Buffett, I think he can always increase his earned income at his company if he wants to pay more in taxes. His checks to the government would certainly be welcomed. However, I don’t think that would solve the problem.
Although I know the likelihood of this is very small, but perhaps it is time for a flat tax based on consumption instead of income. This probably would indeed be a “fair tax.” What do you think? Are we ready?
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A consumption tax would be far more regressive than the current system we have now. A low income family still needs to eat, buy clothing, etc.Yet, the consumption tax would tax much money that never saw income tax, e.g. Illegally gained money.Tough decisions.
I completely agree with both points. There is no way to make everyone happy. I still think it is unfair that 47% of income tax filers pay no income taxes with the current system. This is down from 49%. I guess I don't necessarily agree with a progressive tax system, yet I want to make sure that the poor are taken care of. I just don't like forced redistribution of wealth (i.e. gov't doing it). I think it is demotivating. I don't think it is right to strip someone else of their liberties to give liberty to someone else.Like you said, tough decisions.
Amen!
My Fellow Americans: Yes, the rich pay more than their fair share and then some. Trust Me.Do the poor pay their fair share? The Good Poor, Yes! The Evil, Lazy, Do Nothing Poor, No! The Middle Class pay so many taxes that the Lay abouts are living like Kings and Queens. The Illegal Aliens don't want to leave because with out American Taxes they would not be able to fill up two Grocery Carts with grub each and every week, Plus all the benefits of being an American Criminal. The Real American
As of 2006Top 1% pay 40% of the taxesTop 5% pay 60% of the taxesTop 10% pay 71% of the taxesTop 25% pay 86% of the taxesTop 50% pay 97% of the taxesBottom 50% pay 3% of the taxesAlso with the new rules Obama has created the bottom 70% get more in benefits than they pay in taxes. Therefore the top 30% really pay all of the taxes. Radical liberalism run amok.
No No NO NO NO NO No No!
Phenomenal comments.@Icantwait You bring up some very interesting points, particularly the socioeconomic issues. Although the language you are using is strong, I do get your point.@Endoscopy Thanks for breaking down the stats.@Fritz1021 I hear you, but where is the data??? If you have please share. I do not mind being proven wrong on this one, so enlighten me! (no sarcasm implied)
When ideologies get in the way. Often, we can't hear the facts for the noise. The richer pay more, and many of the lesser paid, (I don't like the terms that denote class), don't pay at all. But wouldn't they enjoy being among the former?Does it all even out? Of course not, but we weren't discussing Law or Judiciary, we are talking about ideological brands of parity.Both parties have equally significant ideological stands both acceptable and less than.I don't care about ideology, I care about the bottom line and how that effects the lives of those around me. And my ability to provide for my family.We have been at this for well over a quarter century. Get it right, get it done, and for once and for all, take ideology out of it. Paying our governments debt should be point and click by now. I do most of mine that way, so can Uncle Sam. When I/we can't provide for our families, are the employers, landlords, mortgage companies, utilities, etc. gonna give 2 spits for my/our feelings?No! They are gonna say "I feel as if you should PAY YOUR BILLS!!".Guess what, they're right.Good Job Shawn!!Richard
The whole point is we need to pay off the damage that came to our country after 9/11 We're all responsible, but you can't expect those that can't feed their family's to pay a lot. We need to bring the factories back end the free trade agreement and get rid of the politicians who won't close the borders, either to get the hispanic voter block or to get the cheap labor that comes there reform welfare and stop giving the Russian imigrants money out of the Social Security fund because they are too old to learn english any foreigner who comes here should have to return home if they become a liability
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