Skip to comments.Who pays the taxes?
Posted on 12/06/2005 8:33:51 AM PST by Marxbites
Who pays the taxes Dec 6, 2005 by Bruce Bartlett ( bio | archive | contact )
Email to a friend Print this page Text size: A A A few weeks ago, the Internal Revenue Service released data on tax year 2003. They show that the top 1 percent of taxpayers, ranked by adjusted gross income, paid 34.3 percent of all federal income taxes that year. The top 5 percent paid 54.4 percent, the top 10 percent paid 65.8 percent, and the top quarter of taxpayers paid 83.9 percent.
Not only are these data interesting on their own, but looking at them over time shows that the share of total income taxes paid by the wealthy has risen even as statutory tax rates have fallen sharply. A growing body of international data shows the same trend.
On the first point, we see that in 1980, when the top statutory income tax rate went up to 70 percent, the share of income taxes paid by the top 1 percent of taxpayers was just 19.3 percent. After Ronald Reagan's tax cut of 1981, which reduced the top rate to 50 percent -- a massive give-away to the wealthy according to those on the left -- the percentage of income taxes paid by the top 1 percent rose steadily.
By 1986, the top 1 percent's share of all federal income taxes rose to 25.7 percent. That year, the top statutory tax rate was further cut to 28 percent -- another huge-give-away, we were told. Yet the share of income taxes paid by the top 1 percent continued to rise. By 1992, it was up to 27.5 percent.
Of course, it would be a mistake to conclude that tax increases will not raise the wealthy's tax share or that tax rate cuts always will. Nevertheless, it is remarkable that the percentage of federal income taxes paid by the top 1 percent of taxpayers almost doubled during a time when the top income tax rate fell by half.
A common liberal retort to these data is that they exclude payroll taxes, which are assumed to be largely paid by the poor. However, it turns out that when one includes payroll taxes in the calculations, it has far less impact on the distribution of the tax burden than most people would assume, because the wealthy also pay a lot of those taxes, too.
In a 2004 paper presented to the American Statistical Association, IRS economists Michael Strudler and Tom Petska calculated percentiles data that included both income taxes and Social Security taxes. In 1999, the top 1 percent paid 23.3 percent of combined payroll and income taxes, the top 10 percent paid 52.2 percent, and the top 20 percent paid 68.2 percent.
In recent years, a number of foreign countries have also started publishing tax shares data. They show the same trend of higher and higher burdens on the wealthy even when tax rates are cut sharply.
For example, according to Her Majesty's Revenue and Customs, the share of total income taxes paid by the top 1 percent of taxpayers was 11 percent in the United Kingdom in 1979, when the top income tax rate was 83 percent. Prime Minister Margaret Thatcher cut that rate to 60 percent, and by 1987 the share of income taxes paid by the top 1 percent had risen to 14 percent. The top rate was cut again to 40 percent, where it still stands, and the share of income taxes paid by the top 1 percent continued rising to a current level of 21 percent.
Statistics Canada recently released a study looking at tax shares in that country. It shows that the share of federal income taxes paid by the top 10 percent of taxpayers reached 52.6 percent in 2002 -- almost exactly the same as is paid by the top 10 percent in the United Kingdom. However, the top income tax rate in Canada is just 29 percent. (Provincial tax rates in Canada are very substantially higher than among U.S. states.)
Finally, we now have data for Australia from the Australian Taxation Office. In 2003, they show the top 5 percent of taxpayers paying 30.2 percent of all income taxes, the top 10 percent paying 41.8 percent, and the top 25 percent paying 63.8 percent. But the top income tax rate in Australia is 47 percent. Thus we see that the country with the highest top rate also brings in the least amount of total income tax revenue from its richest citizens in percentage terms.
At some point, those on the left must decide what really matters to them -- the appearance of soaking the rich by imposing high statutory tax rates that may cause actual tax payments by the wealthy to fall, or lower rates that may bring in more revenue that can pay for government programs to aid the poor? Sadly, the left nearly always votes for appearances over reality, favoring high rates that bring in little revenue even when lower rates would bring in more.
The bad news is that, with so few people really PAYING taxes. "cutting taxes" is a policy tool that appeals to fewer and fewer folks. The tyranny of the majority stands to ensure its grip on ever larger tax revenues, paid by a numeric minority.
The policy of robbing Peter to pay Paul will usually be supported by Paul.
Exactly. Where's all that "rights of the minority" rhetoric when you need it? The majority cries, "The government should pay for that." But the government has no money. Why not just cut out the middle man and legalize robbery of the rich.
A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.
The last figures I saw stated that 47 percent of "filers" pay zero income tax. I wonder how many "zero filers" draw refundable credits and EIC from the system.
Wasn't there something during the last campaign saying that
one of Mother Teresa's tax returns shows that she paid an effective tax rate of something like 10%?
No representation without taxation.
I agree - what stake in America do those that pay zero income tax, but yet get child reverse taxes, have in voting for anybody but redistributtionists - none.
Cutting this elitist enriching pig of a Govt was RWR's job #1.
ALL who derive benfit from Govt should pay at least something for no other reason than to disuade them form thinking they are owed something from the rest of us.
Taxes are the very stuff that allows Govt to have become 3x it's constitutional size and cost, and is mostly enabled through the Fedl Reserves ability to inflate the currency and is the reason for it's existence.
See this - read the article at the link at bottom of the excerpt:
What does the rich "buy" for their taxes? Under our system of government, they certainly can't buy influence, can they? What do the rich get for all this treasure?
Rush has a really great pie chart on his web site about this very thing.
Rules and regulations. That's what they buy. Oh, and a workforce that understands why the rich are bad, why minorities (except fiscal minorities) are oppressed, and why sexual freedom is the most important freedom of all. Of course they may not be able to read, write, or do arithmetic; but priorities are priorities.
It's an interesting theoretical question, though, because one would think the rich would get something in turn for their treasure. Otherwise, they certainly have the means to alter the system.
That's just it. They do not have the means to alter the system because they are a minority -- a hated minority.
Yes, but history has taught us a minority with money often trumps a majority quite handily.
Maybe they should shrug.
A more meaningful statistic (but impossible to obtain, due to deliberate government obfuscation in all its wealth redistribution schemes) would be what percentage of the population are NET taxpayers, i.e. pay in more than they take out. And within that small and shrinking group, how disproportionate the tax burden is.
Limit voting to people who are NET taxpayers, and you'd see a sudden massive change in the country's political landscape.
Then why are they stuck with all the taxes?
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