Once again, taxation has become the subject of debate at the federal level. Democrats say the rich need to pay their fair share, and Republicans claim this is class warfare. Both sides can’t be right. With both sides arguing over politics, what are the facts about tax burdens in America?
The tax system in America is complicated. Different tax rates apply to different types of income, and higher levels of income have higher tax rates, in general. This is further complicated by deductions and other components in the tax code. During the past 10 years, tax rates have been lowered on almost everyone by Congress and the George Bush and Barack Obama administrations. And there’s an important difference between tax rates and the amount of taxes actually paid. A tax rate may be lower for someone, but that doesn’t necessarily mean they’re paying less taxes.
Given what some on the left are saying about taxes on the rich, you would expect the rich are getting away with paying barely any taxes. This couldn’t be further from the truth. The Congressional Budget Office has published data on taxes every year for the past 30 years, the latest year available being 2007, so feel free to look this up on your own on the CBO’s website.
In 1980, the richest 20 percent of Americans paid 56 percent of all federal taxes, and made 46 percent of the country’s entire income. That same year, the bottom 80 percent of Americans paid 44 percent of all federal taxes and made 54 percent of all income. So, though the rich were making a large portion of the income, they were paying an even larger portion of the taxes.
The rich’s share of taxes hasn’t decreased since then. In 2007, the richest 20 percent of Americans paid 69 percent of all federal taxes and made 56 percent of the country’s total income. That’s a 13 percent increase in share of taxes on a 10 percent increase on share of income. If you look at federal income taxes only, the richest 20 percent pay almost 90 percent. Remember, they make 56 percent of the country’s total income. The idea that the rich aren’t paying their fair share is an outright lie. But am I saying the rest of America should be paying more taxes? Definitely not.
So, what’s the problem with wealth and taxes in America? The tax code and wealth inequality. Due to the (purposefully) complicated tax code, some wealthy people who ought to be paying taxes are able to escape them almost entirely. The tax code should be simplified so that all types of realized income pay a more equal tax rate. The reason Warren Buffett’s tax rate is lower than his secretary’s is because his income comes mostly from investments rather than a paycheck, but he still pays far more total taxes than his secretary.
Disregarding the ongoing recession, every income group had gotten richer between 1980 and 2007, according to the CBO. The poor had gotten just slightly richer while the rich had gotten much richer. Inequality is a problem that can cause social and economic problems. Should taxes be used to combat income inequality? If that’s what the president wants to do, then let’s call it what it is: making the rich pay nearly all of the federal taxes. With government spending at an all-time high and the poverty rate at the highest it’s been in 20 years, clearly the government hasn’t been an effective tool against inequality.
Right now, the rich pay most of the taxes as they should, because they’re making most of the money. But saying the rich aren’t paying their fair share isn’t true.
