Should the Rich Pay All the Taxes?

Taxes are unfair and too high, unless someone else pays them.

            This is common knowledge.

            That’s why politicians work so hard to give everyone the illusion that the real tax bill will be paid by someone else.

            In fact, we have a problem in this area. While most people don’t recognize it, we are becoming increasingly dependent on a single group. This group pays most of the taxes that run our government.

            This is important.

            It is more important than the river of drivel that started early this week with TV interviewers asking Lawrence Lindsey, chairman of the president’s Council of Economic Advisors, whether it was right to give so much of any tax cut to the rich.

            In fact, I think the TV guys have it backwards. The important question is different.

            Can we afford to depend so heavily on rich people?

How about a tax cut that makes us less dependent on rich people. They’re a flighty bunch and, personally, I just don’t feel safe knowing that rich people pay most of the tab for every function of government.

            Of course, we’ll need to define “rich.”

            Most of us have a glamorous idea of “rich.” Rich is having gobs of money, yachts, barrels of beluga, multiple houses with indoor basketball courts, and Caribbean trips in the private jet to overcome the enuii of it all.

            This is not the group our politicians are considering when they talk about the rich— though they seldom make concrete references to actual income levels. Their “rich” is anyone with an income over $50,607 a year.

According to a study by the Tax Foundation, a Washington organization that monitors taxation in all forms, the top 25 percent of all income earners in 1998 were those with incomes over $50,607.

They paid 82.7 percent of all Federal income taxes.

Yes, you read that right, 82.7 percent of all income taxes. The other 75 percent of earners picked up 17.3 percent of the bill for running the country.

            Back in 1987 the top 25 percent paid 76.9 percent of all income taxes, so our dependence on the rich is increasing.

            Indeed, while there has been much comment on the increasing concentration of wealth (some of which has recently disappeared) there is little talk about the increasing concentration of taxpayers. The table below shows how much the concentration of taxpayers has increased since 1987.

The Rising Concentration of Tax Payments

(Percentage of federal income taxes paid by group)

Source: Tax Foundation

            Scott Hodge, a Tax Foundation researcher, notes in a recent study that you can have a modest vocation and still be in the top 25 percent of taxpayers. An average pay level kindergarten teacher who is married to an entry-level fireman, for instance, would be in this elite group.

            Millions of two-earner families with children are in this position. According to Census Bureau data, some 51 percent of all families with children have two earners. Half of them have incomes over $50,000.

            These rich people would benefit from lower taxes. So would the economy.

            Now let’s look at the tax cut question another way.

            Whose taxes can be cut and make a difference to the economy?

            You could eliminate the bottom 50 percent of all income earners by taking them off the tax rolls altogether. Do that and you’ll liberate a trickle of cash, some $31.1 billion in 1997. You’d also increase the portion of taxes paid by the rich.

 The bottom half paid federal income taxes at a not-so-terrible rate of 4.5 percent rate.  They paid only 4.3 percent of total individual income tax collections.

The next 25 percent contributed 13.9 percent of all income tax collections, about $101.1 billion, and paid taxes at a 9.5 percent rate. 

            Bottom line?

            If you’re going to cut taxes, you have to cut them for people who pay taxes. As bank robber Willy Sutton once said, “Because that’s where the money is.”

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo:

(c) Scott Burns, 2022