The debate about federal taxes continues to boil, partly because people are looking at very different indicators of what is "fair" and "efficient" in taxation. Let me try to clarify some of the heated points of the debate.
Conservatives point out that the richest 1% receives around 20% of personal income yet pays 38% of total federal income taxes (All data may be found at the Tax Foundation. To calculate average income in each income category, divide the total income in that category by the number of households). In this sense, the federal income tax is indeed progressive, meaning that the rich pay a higher share of income than the poorer households. The implication for conservatives is simple: the rich need not pay more in taxes since they already carry a large and disproportionate share of the federal income taxation.
Yet things are not so simple. The rich have enjoyed an unprecedented boom in their incomes in recent decades. Globalization has been exceedingly kind to them. Stock markets have boomed since the 1980s and investment and profits earned abroad have soared. The wages of American production workers have stagnated, under the pressure of labor competition from Asia. Lower wages of production workers have led to record corporate profits, while manufacturing jobs have been shed by the millions.
The result is a startling rise of income inequality. The (pre-tax) average household income of the top 1% has skyrocketed from $386,900 in 1980 to $1,203,600 in 2008 (using the 2008 price index in both cases). The (pre-tax) average income of the bottom 50% of households, by contrast, has declined slightly from $16,100 in 1980 to $15,400 in 2008, and that decline occurred despite the rise of two-earner households struggling to make ends meet.
Despite much bellyaching about their high federal income-tax burden, the rich have actually enjoyed a declining average tax rate. In 1980 they paid 34.5% of their incomes in personal income taxes, and this fell to just 23.3% by 2008. The rich are certainly not suffering under an arduous tax burden. On the contrary, the average federal income tax rate paid by the rich has not been so low since the eve of the Great Depression!
Since the rich have enjoyed a surge in pre-tax income and a decline in the average tax rate, they can easily afford to pay more in taxes without seriously denting their booming incomes. The average post-tax income of the top 1% (subtracting off their federal income tax payments) rose from $253,500 in 1980 to $923,500 in 2008, while the post-tax income of the bottom fifty percent actually declined, from $15,200 in 1980 and $15,000 in 2008. With the bottom half of American society suffering from unemployment, foreclosures, crushing student debts, and falling earnings, why should we continue to bend over backwards to protect the low tax rates of the rich?
Many conservatives believe that raising tax revenues as a share of GDP would utterly cripple the economy. This proposition is incorrect for two reasons. First, the federal government can (and should) raise considerable added revenue by closing tax loopholes. Major loopholes include the low tax rates paid on capital gains compared with ordinary income; the absurdly low rates paid by millionaire and billionaire investment-fund managers; the complete deductibility of employer-paid health-insurance outlays, even for the highest-priced plans; and the deductibility of mortgages, including on second homes and mansions. Closing these loopholes could raise significant revenues even without raising the top marginal tax rate.
Second, and contrary to the claims of the supply-siders, the US economy would not be harmed by higher marginal tax rates. The economy thrived in the 1950s and 1960s when top marginal tax rates were over 90% in the 1950s and 70% in the 1960s. The steep cuts in the top marginal tax rates that began in 1981 did not deliver on the supply-sider promise of high employment and rapid economic growth. Instead, the thirty years of low top tax rates have contributed to large budget deficits and the exceptionally high inequality of income.
Most conservatives also believe that the government budget deficit can and should be eliminated by cutting "wasteful" federal spending rather than by increasing tax revenues as a share of GDP. In another recent posting I've shown why this view is erroneous. A basic level of public services will require around 24 percent of GDP while our current tax system only brings in around 18 percent of GDP. If we try to close the budget by holding spending to 18-20 percent of GDP, we would end up shredding the social safety net and crippling America's global competitiveness.
Some conservatives object that the poor don't pay any taxes at all. This is simply not true. The poor pay federal payroll taxes, as well as sales and other taxes at the state and local level. It would be possible, of course, to collect personal income taxes from the poor as well, but the government would then presumably have to increase its transfer payments as well to keep these households above destitution. That is exactly why Milton Friedman supported a "negative income tax," in which the poor would receive money rather than pay taxes. That is basically how the American federal income tax system currently works.
The bottom line is the following. The period since 1980 has been an era of exceptional gains for the richest Americans. They've enjoyed an unprecedented surge in pre-tax income together with a decline in the average rate of income taxation. Their net-of-tax incomes are at all-time record highs while the rest of American households suffer the stagnation or decline of real incomes. While it is true that the rich pay a high share of the total federal taxation, they can afford to do so, given the soaring incomes and declining average tax take.
We are at a time in our country's history when everybody needs to pull for America's recovery and long-term competitiveness. This is the time for the rich to step forward and assume their responsibility. Let's start hearing the responsible voices of those on Wall Street who have never had it so good and who therefore want to help rebuild the country. Let them reassure that rest of Americans that they are finally ready to respond to JFK's call a half-century ago to "ask what you can do for your country."
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Very few rich people ever become rich because they enhance live by the amount of money they make. I say we pay people by the amount of energy they expend to increase and enhance the world around them.
In other words, since Trump gets rich by crying poor in chapter 11 proceedings, gets his payments reduced and essentially cheates the average worker in his employ or establishment, we could consider Trump the con that he truly is. After all, buying a$1 bottle of water for $2 because his face is on it, is hardly enhancing the planet.
You want to know how the rich get rich, watch Trump. It invovles a lot of decpetion and stealing. I have yet to find more than 2 people who have gotten rich by enhancing the environment. But I've found tons of Trumps who become well off everyday.
Beside, we can't all be rich. There has to be the people who do the work. How about we pay them more propotionately. Oh, oh, then we can have the American Dream back. In fact, it was not such a long time ago, when the American Dream was not about getting rich-it was about making enough to live and have your kids live too.
You have written an unbelievably sloppy article. Why don't you analyze the real factors behind wage discrepancies instead of simply talking about class warfare.
First of all the pre-tax average income of the bottom 50% is not $18,400. Where in tarnation did you get that number? Are you saying that 50% of the households in American are below the poverty level?
Next, the single largest variable in income produced over a lifetime is level of educational attainment. Are you really arguing that those with Masters degrees should be paid the same as high school drop outs? That would be a tremendous educational incentive.
Another glaring misrepresentation is that the lower quintiles are two earner families. Completely false. In fact the decline of marriage and the increase in divorces creates a family demographic that is far different from 1960.
Isn't there anyone that proof reads anything on the Huffington Post? It is so much poorly researched tripe that is only meant to fire up the base at the expense of any real facts or conversation on fixing the problems.
I personally used to make $54 an hour and now work for $10 hr. The rich in America would prefer if American workers would just roll over without complaint and adopt the Chinese model. Then the super wealthy would not have to deal with all that uncessary travel to go overseas to check on their money.
You used to make $54/house and now make $10/hr.? Surely there is a story behind it. Who do you blame for this? Who is obligated to pay you $54/hr. for what type of labor? If you are so skilled start your own business as millions do, and reap the benefit of your labor.
There's a word for people like you....oh, yeah, theives.
is taxed at 15%, half of "earned" income of working folks. Spends the same.
Where is the fairness of that? Thanks Pres. Bush.
So it seems that a lot of people vote based on perception and emotions but not rationally.
The whole emphasis on income tax only, however, conveniently ignores the entirety of the tax burden, which falls much harder on those in the middle and lower end of the spectrum. My state of MN, for example, has seen the state sales tax rise from 4% when it was first introduced to nearly 7.5%--and many counties and cities have additional taxes to support such things as Target Field and the tourist industry on the North Shore of Lake Superior. Property taxes as a share of income fall exceedingly hard on those with lower incomes. The property taxes on a modest home in either Mpls or St Paul can rival those on a mini-mansion in a third tier suburb, d/t the necessity for greater services in the central city.
The reality is that the boom times in this country since the Great Depression were times of higher income taxes, less inequity of income and greater investment in infrastructure. And even at a 50% top tax rate, such as in the 50's and 60's, that still meant plenty of disposable income for the highest earners.
The first you'd reduce to poverty. The second would just buy one less yacht.
No -- what we have here is someone who gets their info from Fox News -- the network creating the least informed folks in the U.S.
High tax rates conjugated with high tax write-offs, ie mortgages, retirement, investment, financial products, etc. created the financial boom and bust. The misapplication of the income tax upon wages, every human endeavor under the sun, any economic activity that will enhance human survival, while placing income under the protection of capital gains, has retarded the national economy. Why doesn't the necessary conclusion come to fruition.
The Tax system can not be reformed until the Imperial system, that is the monetary financial debt based system we are forced to survive under, is terminated. Contraction of production is now the most serious threat to the US population. Physical production must not be impeded by taxation and/or market forces. Government policy must apply a war time urgency to this crisis.
Crisis economy formation measures must be implemented now or this great nation is doomed.
The United States must protect itself from the irrational, absurd demands of the International Bankers, stabilize itself: Reenact Glass-Steagall in US banking, put the Fed into bankruptcy protection, recover the bailout trillions, create the US National Bank that funds the 50 states, then fund the necessary facilities that enhance the population's standard of living. Stop Perpetual War. No other options exist.