Is it how Much we Give or how Much we Could Give that Counts?
Imagine, if you would, two people standing in front of an orphanage. There’s a donation box there. And we can see these caring people actually count out their money before placing it in the donation box. One counts out $20. The other counts out $100. Who is more generous?
Is this a trick question, you ask? Well, yes, I guess it is. You see, normal people, like you and me, are inclined to say the person donating the $100 is more generous. I mean, $100 is more than $20. $100 buys more than $20. $100 will do more for orphans than $20. So it sure looks like to us, the normal people, that the $100 donation is the more generous donation. But that’s not the way government would see it. For I left out one important piece of information. I didn’t say how wealthy these people are. So let’s do that now. The $20 donation is from a UAW line worker. The $100 donation is from a rich business owner. Now who is more generous?
$100 will still buy more than the $20 for the orphans, but $100 is a smaller percentage of the business owner’s salary. The $20 donation is a larger percentage of the UAW line worker’s salary. So, people in government, and those on the Left, will say the $20 donation is the more generous donation. Even though it will buy less for the orphans.
We Pay Tax Dollars, not Tax Rates
This is a big problem clouding the debate over ‘fair’ taxation. Devious politicians point to tax rates and cry that the rich aren’t paying their fair share. When, in fact, they are paying far more tax dollars than those less rich. Even in an attack on these rich bastards shows this (see Only Little People Pay Taxes by Dave Gilson posted 4/18/2011 on Mother Jones).
Leona Helmsley’s distaste for paying taxes eventually landed her in federal prison. But the rich have little need to break the law to avoid the tax collector. As Martin A. Sullivan of Tax.com recently calculated, a New York janitor making slightly more than $33,000 a year pays an effective tax rate of nearly 25%. And the effective tax rate for a resident of the Park Avenue building named after Helmsley, earning an average of $1.2 million annually? A cool 14.7%.
And the chart following this shows the income and taxes of the Janitor and the millionaire. And even though the millionaire pays only 14.7% in taxes, the actual tax dollars paid in income taxes is $159,515. And how much did that janitor pay? Just $3,168. The cheap bastard, the millionaire, paid $156,347 more in income taxes. That’s 4,935% more than the janitor paid in income taxes. Yes, 14.7% is a smaller percentage than 25%, but there’s no math in the world that says the janitor paid more in income taxes than the millionaire.
There’s a difference between tax dollars and tax rates. And tax rates don’t pay the bills. Tax dollars do. And the rich pay more of them by far. Anyway saying otherwise is fostering class warfare for political purposes. Because if it was about tax dollars to pay for federal spending, $159,515 pays for a lot more spending than $3,168.
Low- and Middle-Income Families don’t Pay their Fair Share of Taxes
So if the rich aren’t paying their fair share of taxes, who is? And are there others, too, not paying their fair share? Of course, that can’t be. Because only the rich can get away with cheating the… Hello, what’s this? Low- and middle-income families aren’t paying any federal income taxes? Really? How can that be? Wasn’t it the rich blankity blanks that were screwing the poor? Not the other way around (see Nearly half of US households escape fed income tax by Stephen Ohlemacher, Associated Press Writer, posted 4/7/2011 on Yahoo! Finance)?
About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization…
In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.
Really? They’ve told us that people flipping burgers for minimum wage were poor, but even people earning $50,000 are poor? No wonder we have so many people in poverty.
The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment…
In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.
No wonder the Democrats win elections. You know there are a lot of Democrats in that 49% not paying federal income taxes. That makes the Democrats a modern day Robin Hood. Stealing from the rich. And giving to the low- and middle-income. And when you’re on the receiving end of this bounty, you’re all for class warfare. Screw the rich, you’ll shout. Until, God forbid, you become rich. Just ask Nicholas Cage. Sinbad. Wesley Snipes. Or Willie Nelson. And anyone who won the lotto. Or a car. Who did not realize that their bounty came with a hefty tax obligation (there’s no tax withholding for these people. They have to write a check for all the taxes they owe). People are stunned to learn the amount of their money the government wants. And that isn’t fair. But before they were rich, that was a different story. Then nothing was fairer than sticking it to the rich.
The Rich aren’t Rich Enough to Pay all our Taxes
If the poorest half of all Americans aren’t paying any taxes, then who, exactly, is? I mean, if the rich aren’t paying their fair share and the poor aren’t paying anything, who does that leave (see Where the Tax Money Is posted 4/17/2011 on The Wall Street Journal)?
Consider the Internal Revenue Service’s income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.
That’s funny. I thought the rich weren’t paying their fair share. And in 2008 the top 1% paid 38% of all taxes. I don’t know, but 38% sounds like a lot more than the 0% paid by the poorest 50%. So the rich are paying a lot. Can they pay more? Can they pay all of our taxes? Well, even if you confiscate all of the top 1%’s income, no. They can’t. They simply aren’t rich enough.
Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.
The richest 10% of all Americans, including everyone making $100,000 or more, won’t do it either. At least, they can’t fund a $4 trillion budget. Which means there’s no way no how you can pay for government by taxing the rich. Even if you tax them at 100%. You see, these rich simply aren’t rich enough. You know who is, though? The middle class.
So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.
This is politically risky, however, so Mr. Obama’s game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it…
Keep in mind that the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class. These include the deductions for state and local tax payments (especially property taxes), mortgage interest, employer-sponsored health insurance, 401(k) contributions and charitable donations. The irony is that even as Mr. Obama says he merely wants the rich to pay a little bit more, his proposals would make the tax code less progressive than it is today.
The $100-200 thousand earners are the largest group of earners in the country. They may each make less than each of the top 1%, but their numbers are far greater. And it adds up. If you drop that low end to $50 thousand and the total pot of income is close to $3 trillion dollars. That’s a lot of money to tax. And a lot of tax deductions to disallow. That’s the sweet spot. The $50-200 thousand earners. They’re just one plump, stuffed, cash piñata. And oh how they want to whack it open. But how to do it? And blame the Republicans? That is the question that faces them.
Only the Middle Class can Fund a $4 Trillion Budget
And you do this, of course, by lying. In his speech to offer his ‘budget’ in a response to the Ryan budget, Obama said he would cut the deficit by $4 trillion over the next 12 years. How? In part with $2 trillion in spending cuts. Which aren’t exactly all spending cuts. They’re actually tax increases. You see, he sees tax breaks and credits as federal spending. Because it costs government by not having that money collected as a tax. So he will cut that ‘spending’. By eliminating those tax breaks and credits. Resulting in you paying higher taxes. And that additional money the government is ‘taking back from you’ will lower the deficit. Confused? You should be. This is about as devious as it gets.
And he also said he would save $1 trillion by not renewing the Bush tax cuts. So that’s another $1 trillion in new taxes (see Obama’s $2 trillion stealth tax hike by James Pethokoukis posted 4/17/2011 on Reuters).
If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years. That means total debt reduction, not counting interest, would be $4 trillion, 50 percent of which would come from higher taxes. The econ team at Goldman Sachs ran a similar analysis and found that 56 percent of Obama savings over ten years could come from higher tax revenue.
So that’s $2 trillion in new taxes. And where do you think that will come from? Not the 1%, that’s for sure. If you took all of their money it would only get you half way there. To raise that kind of money, you have to go to the sweet spot. The middle class. Including those making far less than $200,000. You have to tax everyone making $50,000 or more. And take away their tax breaks and credits. Where it will really hurt. And be political suicide. So why promise to do just that? Simple. He’s not.
The Obama plan is a non-plan. It’s just a political tool for the 2012 election. To show that it is the Republicans that want to cut Social Security, Medicare and Medicaid. Not him. He’ll say he fought like a dog to save these entitlements. Because he cares for you. Unlike those nasty mean Republicans. And entitlement spending will continue to grow unchecked. Making it that much harder to save these programs down the road. But this is what politicians do. Kick the can down the road. For someone else to worry about. For by that time, many of the Democrats will be dead. And won’t care anymore.
It’s not the Taxes, Stupid. It’s the Spending.
There’s a difference between tax rates and tax dollars. And it’s the tax dollars that are important, not the tax rates. The rich may have a lower effective tax rate but they pay an awful lot in tax dollars. And as tax dollars go, they’re paying more than anyone else. Far more than half of all Americans. Who pay $0.00 in federal income taxes. If anyone is screwing anyone, it’s the lower 50% screwing the top 10%. And the top 10% probably wouldn’t mind so much if we weren’t constantly demonizing them despite their generosity.
When you can’t pay for your spending by taxing everyone making $100,000 or more at 100%, you’re spending too much. This is a spending problem pure and simple. It’s not that the rich aren’t paying their fair share in taxes. They are. And then some. It’s that government is just trying to buy too many votes. If there is any greed here it is in Washington. Their spending is out of control. Even Standard & Poor’s Ratings Service thinks so. They just lowered our rating from “stable” to “negative” because of the “ballooning deficit.” Because our out of control spending threatens our future ability to service our debt.
But the Democrats have other pressing concerns on their minds. Like winning elections. And you win elections by spending. Not living within your means. And if they play it just right, the day of reckoning will come conveniently in the future. When they’re dead. Problem solved. For them, at least. Their children and grand children? Guess they just don’t care about them.