With all the talk of the rich not paying their fair share of taxes and
the tax cuts earlier this decade only going to the rich, here are some
facts to contemplate and you as the reader can make up your own opinion.
· The statement above could be true when you look at it from a pure
dollar point of view. Someone who makes $500,000 versus someone who
makes $50,000, if they each get a 5% tax cut, the first one pays $25,000
less in taxes, where the second one only pays $2,500 less in taxes.
· I believe if you want to make an argument who pays more in taxes,
you should look at a percentage of income paid and not the dollar figure.
Let's look at some facts here from the latest statistics from the IRS
that can be found on their website:
· The top 25 percent of income earners pay 86% of all personal,
federal income taxes. That is up from 84 percent in 2002.
· The top 50 percent of income earners pay 97% of all personal,
federal income taxes, which also means that the lower half of all income
earners in this country pay 3% of all personal, federal income taxes.
The medium in 2006 was just over $48,200.
· What is amazing is that the top 1 percent of income earners pay 39%
of all personal, federal income taxes, which is up almost 6 percent since
· 20 years ago, the top 1% paid a little over 27 percent of all
personal, federal income taxes, and the top 50 percent paid about 94
All the talk about the lower income bracket not getting enough of a tax
cut has a mathematical problem. How can you cut taxes for someone who
already pays very little or nothing? That was actually answered during
the tax cuts in 2003 by cutting the lowest bracket from 15% to 10%. So
the people who pay most of their taxes in the lower of two lowest
brackets received a 30% tax cut. This obviously is not a large dollar
figure, but a nice percentage cut. In addition tax credits were
Anyway, the issue we have at hand is that the taxes are paid by a smaller
and smaller part of the population. This results in several problems:
· There is a large part of the population that is no longer
contributing, even if it is a small amount. Any tax law changes do not
affect them and therefore they don't care.
· The smaller the pot from where the taxes come from, any changes in
the economy or the behavior of people will have a much bigger impact on
the amount of money received by the treasury.
The problem is even worse than people not paying any taxes, you can
actually get money back even if you don't owe any. There are two that
come to mind, the Child Tax Credit and the Earned Income Credit. I think
the second one is a good thing as it is an incentive to work, and the
more you work, the more you get and it is capped at a low income and
favors people with children. There is nothing wrong with the Child Tax
Credit, but I don't see why someone actually needs to get a refund beyond
their over payment.
The tax laws are also screwed once you make too much money in the
government's point of view regarding credits and deductions. Anyone
making more than $100,000 is rich in the government point of view. I
would certainly disagree on that, ask a mom or dad with two or three kids
making in the low $100s if they feel rich. Anyway, once you reach that
level, many of the deductions like tuition are being phased out, the
child credit disappears just to mention a few. You will not get a dollar
for dollar deduction anymore for your mortgage, charity, state taxes etc.
I could go on and on. In some circumstances, because of the phase outs,
the effective tax rate for a certain income range (like the income from
$110K to $115K, which is just an example as it depends on the situation),
is in the confiscatory category where literately a huge chunk of extra
earned money goes to the government. This is offset somewhat by not
having to pay social security taxes anymore, but that is story for a
I think what we need is a flatter tax with less deductions. All of us
should pay something, because once you have some money invested, you
might actually have some interest how it is spend. We need to be
generous to the ones in need and the unfortunate, but that is not almost
half the population that pays only 3 percent of the taxes. We should be
more generous with families than with single people, nevertheless they
should all pay the same rate, just the dollar figure when you start
taxing should be different.