Tax Inequality

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We read it and see it every day in both mainstream media and in Social media, “The wealthy need to pay more taxes”, “The 1% are not paying their fair share in taxes” and all other complaints about how the tax burden of the average American is hard to bear.  But how do these feelings measure up to the facts?  Are the rich skipping out on the check and leaving the rest of us to pay the bill?

Here are some facts from the IRS on our Federal tax burden straight from the IRS:

In 2016, 140.9 million taxpayers reported earning $10.2 trillion in adjusted gross income and paid $1.4 trillion in individual income taxes.

So, by these numbers, if the tax burden was evenly distributed among all US Federal taxpayers, We the People, would pay about 7.2% of our income in taxes.  That would put each of our tax bills at around $9,936.00

The share of reported income earned by the top 1 percent of taxpayers fell slightly to 19.7 percent in 2016. Their share of federal individual income taxes fell slightly, to 37.3 percent.

So, the one-percenters earned less in 2016, so they paid less in taxes, pretty understandable.

In 2016, the top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent.

How can that be?  The bottom 50% are only paying 3% of the federal taxes collected?  By the above numbers, that changes the tax burden for the bottom 50% on average from $9,936.00 each to $596.00 which in turn changes the tax burden of the to 50% from $9,936.00 to $19,276.00, Holy Cow, that is over 33 times what the lower 50% pay on average!

The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent).

So it gets even worse for the top earners By these numbers, the top 1% of Federal taxpayers, 1.4 million people, pay over One Million Dollars each in Federal income taxes on average. Compare that to the bottom 50% who only pay only $596 bucks each on average and you can see who exactly is skipping out on the bill.

Why is the perception contrary to the facts?

Media, politicians and special interest groups have been fueling the fires of class warfare at in increasing rate. Blaming the problems of the poor on the wealth of the rich is an old story, it has launched pretty much every revolution in history and while many of these historical revolutions were indeed in response to real inequality in carrying the burdens of society, how does this one match up to the facts?

So if the facts do not match the perception, why is the perception so skewed?  I am convinced that it is part of the journey from a Capitalistic society where you succeed by personal achievement to a Socialistic society where everyone is taken care of.  The problem here is that when we get to the point where more people are riding on the wagon than are pushing the wagon, the whole system comes to a halt.  When you remove the rewards of hard work by taking money from the achievers and give it to the non-achievers, there is no longer a reason to achieve.

Our economy is a symbiotic relationship between production and consumption, and while we all consume, not all of us produce at the same rate.  The average earner in our country consumes at about the same rate as they produce, living by paycheck, putting away for special purchases, vacations and retirement.  Those who consume more than they produce, are a burden on society. The top earners in our country produce more than they consume, and while they can consume more by having nice houses, cars and vacations, the money from their excess consumption is what fuels our capitalistic economy through investment in industry.

So, don’t hate the rich, they fund industry and taxation allowing us as Americans to prosper and if you take them down, you take down our society as a whole.

Sources:

https://www.taxpolicycenter.org/briefing-book/how-do-taxes-affect-income-inequality

[1] Internal Revenue Service, Statistics of Income, “Number of Returns, Shares of AGI and Total Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates,” Table 1, and “Number of Returns, Shares of AGI and Total Income Tax, and Average Tax Rates,” Table 2, https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-rates-and-tax-shares.

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