While the political season seems to never end, with presidential elections looming we are starting to hear again that “the rich aren’t paying their fair share.” We could spend a lot of time arguing over what is fair. I am not one who believes progressively higher taxation with higher income is fair, but I’ll leave that for another day. For this article let’s just look at who is really paying taxes. A recent Associated Press Poll finds that 2 out of 3 Americans think the wealthy don’t pay enough federal taxes. Is that really true, and if not, why does this lie persist? Let’s look at the numbers.
Based on a sample of tax returns filed between January and September 2013, the IRS found that people earning $250,000 and up accounted for 48.9% of all income taxes paid. Those earning between $200,000 and $249,999 paid 6.1% of all income taxes paid. And those who made between $100,000 and $199,999 accounted for 22.7% IRS found. That means that those who earned $100,000 and more paid 77.7% of all federal income taxes paid.
This week, CNBC, the business-finance cable network, projected that the top 1% of American income earners will pay nearly 50% of federal taxes in 2014. The bottom 80% of earners will pay 15% in 2014. And equally stunning, the bottom 60% will pay less than 2% of all federal income taxes paid. We have all seen statements that about 50% of Americans will pay no income taxes.
And what about the super-rich? Warren Buffet says he pays a smaller share of his income in taxes than his secretary does. But when properly accounting for the taxes paid and income earned, the top 0.1% of earners paid 16% of total income taxes. That isn’t enough?
According to a recent study by the Tax Foundation, our US federal income tax is one of the most “progressive” in the world. Almost no other industrialized nation depends on the wealthy to pay the bills more than we do in the United States. The lie that the rich don’t pay their fair share persists, perpetuated by the news media, liberal special interests, and political candidates engaging in class warfare. A recently announced liberal presidential candidate said “the deck is still stacked in favor of the rich.”
I believe we need to address our dysfunctional, inefficient, anti-growth tax system. Our tax code is a mess. It sends jobs overseas, discourages productivity, and punishes hard work. And some want to make it even worse. They want to raise yet another $2 trillion in taxes and give even more special carve-outs to favorite industries. One of the most important things Congress could do is reform our tax code. And the tax code should not be used to pick winners and losers.
Listen to what President John F. Kennedy said in 1962 at the New York Economics Club. “It is a paradoxical truth that tax rates are too high and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut tax rates now.” A lot of our problems could be solved if more politicians in both parties thought like that now. History proves that cutting tax rates is a better way to get money out of the rich than raising them.