Who Pays America's Tax Burden, and Who Gets the Most Government Spending?

Tax Foundation ^ | March 23, 2007 | Andrew Chamberlain, Gerald Prante and Scott A. Hodge

[Kozak]

" There are three kinds of people, makers, fakers and takers. Makers create wealth, fakers pretend to create wealth, here you have all your government workers, and takers who make no pretense of contributing to society. When the fakers and takers outnumber the makers, your society is doomed."

Robert Heinlein

[B4Ranch]

"Understanding Tax Cuts"
David R. Kamerschen, Ph.D

Professor of Economics
University of Georgia

Sometimes politicians, journalists and the liberal left exclaim;
"It's just a tax cut for the rich!" and it is just
accepted to be fact.

But what does that really mean?

Just in case you are not completely clear on this issue, I hope the
following will help. Please read it carefully.

Let's put tax cuts in terms everyone can understand.

Suppose that every day, ten men go out for dinner and the bill for
all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite
happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm
going to reduce the cost of your daily meal by $20." Dinner for
the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so
the first four men were unaffected. They would still eat for free.
But what about the other six men - the paying customers? How could
they divide the $20 windfall so that everyone would get his 'fair
share?'

They realized that $20 divided by six is $3.33. But if they
subtracted that from everybody's share, then the fifth man and the
sixth man would each end up being paid to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce
each man's bill by roughly the same amount, and! he proceeded to
work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now paid $5 instead of $7 (28% savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four
continued to eat for free. But once outside the restaurant, the men
began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man.
He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only
saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he
get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison.
"We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine
sat down and ate without him. But when it came time to pay the bill,
they discovered something important. They didn't have enough money
between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how
our tax system works. The people who pay the highest taxes get the
most benefit from a tax reduction. Tax them too much, attack them
for being wealthy, and they just may not show up anymore.

In fact, they might start eating overseas where
the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D
Professor of Economics
University of Georgia

[Kozak]

How exactly will they kill us? We have all the wealth, all the brains, plus the police and the army.

Read Atlas Shrugged for a clue.

[RKV]

About 7% of US households have a net worth of greater than $1M (excluding their primary residence). And yes, young people who are working are subsidizing older, retired people. Of course, Social Security is bankrupt (i.e. has more liabilities than assets [the liabilities are kept off the balance sheet]) and the illusion that it still works is going to fail in the near future.

[RKV]

You really don't have the police and the army like you think you do. They obey orders. When the duly elected politicians vote to confiscate your property (think Rhodesia) they'll do what they are told to do, and you'll be out of luck. It will be called "land reform" or "reparations" or some such nonsense. In reality it will be theft.

[RKV]

Well put - nice example.

[proxy_user]

Well, having all the brains and money is much more important. The wealthy and powerful control the political system.

You will notice that even the Democrats never talk about taxing wealth, only income. The socialists have never been more thoroughly marginalized.

Do you really think that fat slobs living in trailer parks, dreaming their lives away watching TV, will ever take over the country? That's what the lower classes consist of. They don't even know when the election is.

[Air Force Brat]

That's an interesting story. I've seen it before.

But it's a lie.

It wasn't written by Dr. Kamerschen. See here: http://davidk.myweb.uga.edu/

Now - ask yourself. Why would the author of that story want to hide his or her identity and try to pin it on someone else?

Does it have anything to do with its content?

And what it says about the patriotism of the rich?

I don't disagree with the emotion of the story. There is a balance to be struck between taxation and fairness. But the bottom line, in my view, is that it is the wealthy who have benefited the most from this society we call America.

From our laws.

From our constitutional protections.

From our economy.

From our military.

From our transportation, communication, and commercial infrastructure.

It is not wrong to ask them to pay more - the real challenge is finding an appropriate balance.

I'm not a fan of the flat tax for that reason.

But I'm not a fan of the entitlement mentality that plagues so many. It's a difficult, complex question; not well served by simplistic fairy tales such as this anonymous piece whose author apparently was too embarrassed to admit to writing it.

[TheRedSoxWinThePennant]

we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004

If only my investment portfolio could produce such returns

[hellinahandcart]

review

[B4Ranch]

>But the bottom line, in my view, is that it is the wealthy who have benefited the most from this society we call America.<

My polite reply: BULLSHIT

The opportunity is out there for everyone to make money, make more money than they ever dreamed about having. All it takes is work and more work and more work with the determination to succeed.

It doesn't require a high education. It doesn't require luck or even some high tech skill.

You aren't going to get rich in America buying fancy cars or houses that you can't afford, trying to keep up with the Joneses. You will eventually get rich living below your income level. Notice I said eventually. Earned wealth doesn't fall out of the sky. You earn it by working, saving and investing your savings in sensible investments without overreaching your ability to get out of tight spots.

I am sorry you aren't wealthy but don't expect my sympathy because you didn't "make it". I didn't "make it" either. I earned it.

[speekinout]

It's not really a complex issue. You're right that the wealthy have benefitted greatly from our system. But the same opportunity is available to everyone. Some people choose not to take it, and that's fine. But people who choose to live from the earnings of others should want the others to earn more, not less. Otherwise, the charity (be it voluntary or forced) will dry up.

[Onelifetogive]

But the bottom line, in my view, is that it is the wealthy who have benefited the most from this society we call America.

In my view, the wealthy have created most of the benefits of this society we call America...

[Freeport]

So 40% of us are carrying the other 60% huh... Funny that. NOT!

[HawaiianGecko]

But the bottom line, in my view, is that it is the wealthy who have benefited the most from this society we call America.

Well I think there is a very good argument to be made that it is the poor that benefit the most from our laws.

After all it wasn't the poor who came up with our laws, wrote our constitution, developed our economy, built our military, transportation, communications and commercial infrastructure.

Yet they are allowed to use it freely with no complaints.

[dljordan]

"The opportunity is out there for everyone to make money, make more money than they ever dreamed about having. All it takes is work and more work and more work with the determination to succeed."

There are lots of very wealthy people where I live that don't work at all because their daddy left them money. We call them "trustifarians". I would still like to see a flat tax.

[B4Ranch]

Are you asking that I include your children in my will or are you just whining that your Mommy and Daddy didn't give you more.

Both of my daughters work at least 40 hour weeks and will continue doing so until they have proven to me that they don't need money from me to live comfortably. That's when I may start giving them unhampered cash.

[Air Force Brat]

Hmmm...

I appreciate your sorrow, but I earn a very, very comfortable living. You've apparently misconstrued my opinion as being rooted in envy. That is an error on your part. It's rooted in logic.

Ask yourself: who has the most to lose in a lawless society? Those who have nothing or those who are wealthy?

Our society benefits the wealthy far more than the poor. Despite my wealth even I can see that.

[B4Ranch]

Who has the ability to weather a drastic downturn with the least pain? We do, while the poor will have to stand in line just for their basic supplies.

http://www.freerepublic.com/focus/f-news/1807146/posts?page=29#29

http://www.freerepublic.com/forum/a3a9f53301414.htm

[Air Force Brat]

Ah.

Again you're clouding the issue.

I didn't ask about an economic downturn in a regulated society with functioning laws, infrastructure, police, and courts.

My question was who benefits the most from our society?

My answer is it is those who rely on steady commerce that is well-regulated and that punishes thieves. It is those who have the water, transportation, and communication infrastructure that allow their business ventures to thrive. It is those who rely on the courts and the police to defend their businesses, their property, their rights.

It is the rich who benefit the most from our society.

And thank God for this society. It has helped so many to achieve.