Posted by Bignuncio at 5:09am Oct 11 '11People always want the rich people to pay 'their fair share' of the taxes but I never hear anybody say what exactly their fair share is. How much should they be paying? The same dollar amount as the rest of us? That sounds fair to me, but no, I think generally people want them to pay the same percentage as the rest of us. Ok, I can get behind that too, so lets see if they are paying the same percentage as the rest of us.
We have all heard Warren Buffet claiming he pays much less than his secretary but the question that needs to be asked is "is Warren Buffet a representative sample of 'the rich'?" and you can only answer no to this question. Sure there are people that pay lower amounts and people that pay higher amounts in every tax bracket, this doesn't mean that all the people in that bracket are not paying their 'fair share'. So lets look at the brackets:
http://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/
Now from the above source we can see that the top 1% of income earners earn 20% of the total income and pay 38% of all income taxes. This sounds like more than their 'fair share' to me. The top 10% of income earners earn 45.77% of all income and pay 69.94% of all income tax. So again, more than their 'fair share'. I would even say that the bottom 50% who earn 12.75% of all income and pay only 2.7% of the total income tax is basically fair since they can't really afford to pay very much.
Of course anybody would be right to say that some of the ultra rich people earn a great deal of money through capital gains which is taxed at a much lower rate. So how does this play into the above example? Well it seems to me that this means that these ultra rich people pay 24% more than their 'fair share' of the income tax and then on top of that they pay some other large sum of money in capital gains tax that most of the lower brackets don't pay at all since they have no such investments. Even if those lower bracket people do have investments then they pay the same rate as the ultra rich - 15%. So even there they pay their 'fair share' as far as a percentage goes. Considering something like social security tax I don't think is really reasonable here since that money is technically supposed to come back to you when you retire based on how much you paid in, so yes it's taken out of your income but then they give it back to you (you wish).
Now let's talk about raising those tax rates anyway and about what effect this may have.
Some of you might remember an Obama vs. Hillary debate where the question was put to Obama "Given that you know a higher capital gains tax rate (15% at the time) means less investments are made and therefore the government collects a smaller dollar amount why would you support raising the capital gains tax rate?" (probably not an exact quote) To which Obama responded "we would do some thing for fairness". Now this just struck me as completely stupid. I don't know what Obama was thinking there but I think all of the rest of us would be happy seeing the rich people paying a larger share of the tax burden than we are and if you get more money out of them from a lower tax rate then that's fine with me. There is also clear evidence of lowering the tax rates ending up with the rich paying both a larger dollar amount in taxes as well as a larger percentage of the total tax.
[http://www.heritage.org/research/reports/2003/08/the-historical-lessons-of-lower-tax-rates]
So in any discussion about the tax rate one of the first questions that needs to be asked is do you want to collect more taxes or do you simply want to handicap the wealthy people? Because you can't do both. If you chose to simply handicap the wealthy people you are guilty of class warfare which is completely immoral.
So the amount of tax we collect works on a curve, tax too much and you get less than you could just like if you tax too little. So do we need to constantly be changing the rate at which we tax people to attempt to reach this perfect rate of taxation? I don't think so. If you look at the government's tax income as a percentage of GDP (can be found at whitehouse.gov) you will find that tax rates of 90% (the top rate) during and for some time after WWII got them around 18% of GDP in taxes, after that it was lowered to 70% (the other brackets rates were lowered as well) and still got them around 18% of GDP, then it was lowered most significantly under Regan during the 80's (I don't recall off hand the top rate but the middle rate of 54% went down to 28% I believe) and still we collected right around 18% of GDP in taxes. There are solitary years where that rate went up as high as 20.6% and as low as 14.5% and those are the statical outliers. So it would seem that despite the tax rates our government will only be able to collect around 18% of GDP in taxes. This also seems to indicate that as the tax rate was lowered the GDP grew in proportion. So there is some evidence that lower tax rates help to raise the GDP (though I am not making the claim that this is absolutely certain but I could make a fair argument for it in another post).
So why are we hearing all the time that the rich need to pay more? That somehow taxing the rich will free us of our governments huge debt?
The only answer I can come up with this is that it is class warfare, by attacking the 'wealthy' you piss off only 1% of the people and you make the other 99% want to vote for you and other than that nobody cares what the higher tax rates means or how much they are paying now.
So I'll put the debt into perspective... what is it now 13 trillion or so? Ok so lets take the Forbes 400 as an example. It is commonly said that these people own 50% of the wealth in the country. So lets take all their wealth, not just this years income, but 100% of the wealth they own and all the money they saved by avoiding taxes, lets just take it all and pay off the debt with it. The trouble is that only amounts to $1.37 trillion. That amount barely covers the debt for THIS YEAR much less the total debt. You need ten times that to pay off the entire debt.
So is the problem that we are not taxing people enough or that we are spending too much? I think the answer is pretty obvious. So how about we stop talking about taking more tax from people and start talking about having a government that doesn't spend more than it takes in, and after that lets have a government that doesn't try to take 18% of the countries GDP for itself every year (remember that's just the federal government, the states are also taking their share).
We have all heard Warren Buffet claiming he pays much less than his secretary but the question that needs to be asked is "is Warren Buffet a representative sample of 'the rich'?" and you can only answer no to this question. Sure there are people that pay lower amounts and people that pay higher amounts in every tax bracket, this doesn't mean that all the people in that bracket are not paying their 'fair share'. So lets look at the brackets:
http://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/
Now from the above source we can see that the top 1% of income earners earn 20% of the total income and pay 38% of all income taxes. This sounds like more than their 'fair share' to me. The top 10% of income earners earn 45.77% of all income and pay 69.94% of all income tax. So again, more than their 'fair share'. I would even say that the bottom 50% who earn 12.75% of all income and pay only 2.7% of the total income tax is basically fair since they can't really afford to pay very much.
Of course anybody would be right to say that some of the ultra rich people earn a great deal of money through capital gains which is taxed at a much lower rate. So how does this play into the above example? Well it seems to me that this means that these ultra rich people pay 24% more than their 'fair share' of the income tax and then on top of that they pay some other large sum of money in capital gains tax that most of the lower brackets don't pay at all since they have no such investments. Even if those lower bracket people do have investments then they pay the same rate as the ultra rich - 15%. So even there they pay their 'fair share' as far as a percentage goes. Considering something like social security tax I don't think is really reasonable here since that money is technically supposed to come back to you when you retire based on how much you paid in, so yes it's taken out of your income but then they give it back to you (you wish).
Now let's talk about raising those tax rates anyway and about what effect this may have.
Some of you might remember an Obama vs. Hillary debate where the question was put to Obama "Given that you know a higher capital gains tax rate (15% at the time) means less investments are made and therefore the government collects a smaller dollar amount why would you support raising the capital gains tax rate?" (probably not an exact quote) To which Obama responded "we would do some thing for fairness". Now this just struck me as completely stupid. I don't know what Obama was thinking there but I think all of the rest of us would be happy seeing the rich people paying a larger share of the tax burden than we are and if you get more money out of them from a lower tax rate then that's fine with me. There is also clear evidence of lowering the tax rates ending up with the rich paying both a larger dollar amount in taxes as well as a larger percentage of the total tax.
[http://www.heritage.org/research/reports/2003/08/the-historical-lessons-of-lower-tax-rates]
So in any discussion about the tax rate one of the first questions that needs to be asked is do you want to collect more taxes or do you simply want to handicap the wealthy people? Because you can't do both. If you chose to simply handicap the wealthy people you are guilty of class warfare which is completely immoral.
So the amount of tax we collect works on a curve, tax too much and you get less than you could just like if you tax too little. So do we need to constantly be changing the rate at which we tax people to attempt to reach this perfect rate of taxation? I don't think so. If you look at the government's tax income as a percentage of GDP (can be found at whitehouse.gov) you will find that tax rates of 90% (the top rate) during and for some time after WWII got them around 18% of GDP in taxes, after that it was lowered to 70% (the other brackets rates were lowered as well) and still got them around 18% of GDP, then it was lowered most significantly under Regan during the 80's (I don't recall off hand the top rate but the middle rate of 54% went down to 28% I believe) and still we collected right around 18% of GDP in taxes. There are solitary years where that rate went up as high as 20.6% and as low as 14.5% and those are the statical outliers. So it would seem that despite the tax rates our government will only be able to collect around 18% of GDP in taxes. This also seems to indicate that as the tax rate was lowered the GDP grew in proportion. So there is some evidence that lower tax rates help to raise the GDP (though I am not making the claim that this is absolutely certain but I could make a fair argument for it in another post).
So why are we hearing all the time that the rich need to pay more? That somehow taxing the rich will free us of our governments huge debt?
The only answer I can come up with this is that it is class warfare, by attacking the 'wealthy' you piss off only 1% of the people and you make the other 99% want to vote for you and other than that nobody cares what the higher tax rates means or how much they are paying now.
So I'll put the debt into perspective... what is it now 13 trillion or so? Ok so lets take the Forbes 400 as an example. It is commonly said that these people own 50% of the wealth in the country. So lets take all their wealth, not just this years income, but 100% of the wealth they own and all the money they saved by avoiding taxes, lets just take it all and pay off the debt with it. The trouble is that only amounts to $1.37 trillion. That amount barely covers the debt for THIS YEAR much less the total debt. You need ten times that to pay off the entire debt.
So is the problem that we are not taxing people enough or that we are spending too much? I think the answer is pretty obvious. So how about we stop talking about taking more tax from people and start talking about having a government that doesn't spend more than it takes in, and after that lets have a government that doesn't try to take 18% of the countries GDP for itself every year (remember that's just the federal government, the states are also taking their share).