Thursday, October 14, 2010
This chart (recently updated with 2008 data) needs wide distribution, especially now that Obama has rekindled the debate over whether the rich are paying their fair share of taxes. What it shows is that the top 1% of taxpayers (when ranked by income) pay about 40% of all Federal income taxes; the top 5% (which includes all those whose adjusted gross income exceeded $160K) pay about 60% of total taxes; and the top 10% pay fully 70% of all income taxes. You can find the data and commentary from The Tax Foundation here.
Those whom Obama would label as rich—those with incomes greater than 250K—and thus deserving of higher tax rates, paid (based on my interpolation of the data) about 50% of all Federal income taxes in 2008. Is that not enough of a burden?
There are other goodies here. Note that despite the 50% reduction in top marginal tax rates since 1980, the rich have paid progressively more and more of total income taxes. If that's not the Laffer Curve at work, I don't know what is. Plus, this shocker: the top 1% of income earners paid almost as much (92%) as the bottom 95%. We are deeply in a situation in which the few are supporting the many: the bottom 50% of income earners paid only 2.7% of total income taxes in 2008, and 52 million taxpayers paid no income taxes at all. This leaves the Federal government in the precarious position that has already crippled California: since only a relative handful of taxpayers pay the lion's share of taxes, government revenues are highly dependent on the health of the economy. The rich lose far more income in a recession than the poor, and that results in a huge drop in revenues whenever the economy hits a rough patch. The rich also have a greater ability to change the amount of income they earn, and to simply take their income somewhere else if they feel overly burdened.
Our tax code does not need to be more progressive. Instead, tax rates should be flatter and lower, and we should eliminate as many deductions as possible in order to broaden the tax base. The result would be a more efficient and stronger economy, and a more equitable distribution of the burden of government. Give more people some "skin in the game" by requiring them to share the cost of government, and we might find it easier to reduce the size of government. Allowing the burden of government to be borne by only a small portion of the population is not only inherently unfair but dangerous to the economy's long-run health.
Posted by Scott Grannis at 12:17 PM