Whoah – coming up on the big three-five. Scary. Help assuage my entrance into oldhood by giving me stuff:
It’s always a good morning of flying if I can manage to scare whoever is with me.
Thanks for coming along, Jim!
I’ve recently started guest blogging for ImprovePhotography.com – and today had another article published.
In my last entry, I examined and explained the difference between marginal and effective tax rates. In the midst of the current economic turmoil in the US, and the constant cry from the so-called “99%” I frequently hear that the rich are not paying enough in taxes, and that it’s time they paid their fair share. In learning about the US income tax system and how it works, I ran across several sources of information covering historical tax rates and historical taxes paid. After looking through some of the data and using them to generate some graphs, I’ve come up with a few visual aids to help drive home the following point: The wealthiest Americans ARE paying their fair share, and in the last 30 years the tax burden for all BUT the wealthiest has consistently dropped, while the tax burden for the wealthiest has consistently risen.
Most of the data I used to generate the following graphs comes from the Congressional Budget Office, with supplemental information derived from census data available at census.gov. Before I get into the graphs, I need to define a few terms that folks unfamiliar with statistics may not understand:
Quintile: A quintile is 1/5th of the population of what you are measuring. When I talk about the “lowest quintile” or “highest quintile” I’m referring to the lowest or highest 20% of the population measured.
Deficit: This is another word for shortage, or spending more than you earn.
As I looked at the data from the Congressional Budget Office, I became very curious where the breakdowns were for each of the quintiles of earners in the US. So I headed over to the census bureau where I learned the division of each quartile is as follows:
Now, on to the graphs: Up first, a graph of the effective tax rates on the highest and lowest quintile over time. This graph spans from 1979 through 2007 (the newest data available) and clearly shows that while taxes on the top 20% of earners in America has gone up, taxes on the lowest 20% of Americans has declined. The rates on the top 20% have been between 20% and 30%, while the rates on the bottom 20% have moved between 12% and 4%. Also keep in mind that this chart reflects actual taxes paid by these quintiles – after deductions, credits, accountants trying to hide stuff, etc. These are the percentages actually paid in these years.
So, to my friends who insist that the rich are paying less taxes, this is exhibit A. To those of you saying “yeah, well the rates may have gone up, but those rich greedy types have found ways to avoid paying more and more!” – well, you guys can check out the next chart.
This is a chart of all 5 quintiles of tax payers over the same time period as the previous chart, showing how much of the total percentage of taxes each one paid. In other words, if the US only collected $100 in taxes total, here is who would have to pay how much of the $100.
Notice here again that the top quintile of tax payers has had to pay more and more and more (up from just over 50% of all taxes collected to 70%) while the other quintiles pay less and less? So, for 2007 (the last year in the chart) the top 20% of earners paid for 70% of the tax bill to the government, while the other 80% of the US population only paid about 30% of the taxes.
Here is one last graph: Moving away from quintiles for a moment, this one shows the percentage of all taxes paid by the top 10% of all earners in the US over the same time period:
So, in 2007 the top 10% of earners paid 55% of ALL the taxes collected in the US. The other 90% of the population only accounts for 45% of taxes paid. If the trends in this graph continue, the highest incomes will continue to pay more and more of the taxes to fund a burgeoning government filled with more and more social programs and benefits for the lower-income earners.
The liberals among you will scream: “Yeah, but they’re RICH! It doesn’t matter to them at all if they have to pay more in taxes – they can afford it! In fact, they need to pay EVEN MORE, and I should have to pay EVEN LESS!” I just can’t understand this mentality… Keep in mind that the above numbers all focus on income, not wealth. By taxing the highest income earners more and more, the obvious effect is that people will be less motivated to earn more – because they just have to pay more of their earnings in taxes.
The real problem is not that we are not collecting enough in taxes from the rich, it is that the government is spending WAY more than they are taking in. Even if we raised the taxes significantly on the rich, we would not be able to overcome the huge spending deficit that the government has set up.
The rich have been paying their fair share of taxes for years, and have seen that share of tax burden increase over time. It is time to vote in some fiscal conservatives who know how to set and stick to a realistic budget, and who are not afraid to ask some of the rest of us to pay our fair share as well.
Today I joined in a discussion on Facebook that was prompted by the following video:
Clearly this video is about the destructive effects of socialism on a personal drive to succeed. The Facebook discussion quickly devolved into the liberal folks screaming about how the rich need to pay their fair share of taxes, with the conservatives pointing out how they already are. An interesting discussion on the US Federal tax system ensued, and I learned a few things I thought would be interesting to share.
I’m a self-proclaimed conservative nutjob, and I pay some attention to various media outlets with a conservative approach to politics. Something I’ve heard frequently regarding tax rates is that the tax rate on the top 1% and higher of earners in the country has been fantastically high historically – I’d heard figures of 75% or more. While this is factually accurate, this percentage has only been on the highest marginal rates. So, what is a marginal tax rate? I won’t claim to be an expert (I misunderstood this myself until today when I read up on the subject) but here is a simple analogy illustrating what’s going on:
I go to the store to buy 10 apples. Due to mystical pricing madness of the supermarket chain, they have decided that the first 3 apples I buy will only cost $0.10 each. The next 2 will each cost $0.22 each, the next 3 will jump in price to $0.45 each, and the last 2 will each cost $0.75. My total purchase price will wind up being $3.59 (ignoring sales tax for a moment), or an average of just under $0.36 per apple. The highest marginal cost of my apples were the last 2 that I bought at $0.75 each. The effective cost of each apple after the purchase is $0.36.
What the heck does this have to do with our tax system? The tax bracketing system in the US is set up so that the first $$ that you earn is taxed at one rate, then once you earn your way into the next higher tax bracket, the additional $$ you earn is taxed at a higher rate. This means that the dollars that you earn are not taxed evenly – some dollars are taxed higher than others. I suspect that most Americans misunderstand this and assume that once their income reaches into the next higher tax bracket, ALL their income is taxed at the higher rate. This is simply not true.
What is true is that it is impossible to determine an effective tax rate on any single class of earners or tax bracket, because it all depends on just how many dollars you have taxed at the different rates. 2 people in the same marginal tax rate will have a different effective tax rate because they didn’t earn exactly the same amount of money. (I’m completely ignoring deductions – they just further complicate things.) All the discussion and angst about tax rate changes is mostly irrelevant, because not only are the rates changed frequently, so are the brackets. These changes are made in an attempt to maximize total revenue into the federal coffers, and is also part of the reason why with lower tax rates and clever shifting of the boundaries of the brackets the government is able to realize higher revenues.
The IRS releases reports detailing the effective tax rates of all taxpayers broken down by various metrics. I have looked at these figures a bit, and have found that not only are the highest wage earners paying nearly all the taxes, over the last 30 years they are shouldering a higher and higher percent of the total tax burden. Don’t believe me? Stay tuned for some pretty graphs in my next post….