The Wall Street Journal is the leading mouthpiece for cutting taxes for the rich. The Journal editorial board is fully in the service of that cause. An editorial at the start of this week ("Where the Tax Money Is," April 18, 2011) is a vivid case in point. The Journal claims that IRS data prove the "fiscal futility of raising rates on the top 2%, or even the top 5% or 10% of taxpayers to close the deficit." The IRS data in fact prove exactly the opposite of what the Journal claims.
I direct readers to the "Summary of Latest Federal Income Tax Data" presented by the Tax Foundation, October 6, 2010, No. 249. There the reader will find the data they need to discover how the Journal has gotten it all wrong.
Consider the top 1% of taxpayers. Even in a year that the Wall Street Journal acknowledges "was a bad year for the economy and thus for tax receipts," the top 1% reported to the IRS an Adjusted Gross Income (AGI) of $1,685 billion dollars, amounting to 20% of the total reported household income that year, and around 12 percent of GDP. On this sum they paid $392 billion in taxes, an average tax rate of 23%.
The Journal writes that it is impossible to get enough income out of the top 1% to close the deficit, and invites us to undertake the "thought experiment" of taxing all of the income this group. In other words, the Journal claims that even the total income of the richest taxpayers wouldn't close the deficit. This claim is nonsense.
If the tax rate were 100% rather than 23% (and assuming in the Journal illustration an unchanged AGI), the extra revenues would be $1,300 billion, or 9 percent of GDP. Even allowing for other taxes already paid by the richest 1%, the incremental federal tax revenues would be at least 6 percent of GDP. Since every baseline scenario by the Congressional Budget Office and the Office of Management and Budget shows a deficit between 2013 and 2021 that is less than 6 percent of GDP, the total income of the top 1% would close the budget deficit entirely.
With great bravado, the Journal claims that even the income of the top 10% of the taxpayers wouldn't close the deficit. The top 10% reported $3,856 billion in AGI, equal to 46% of total reported income in the United States, almost 27 percent of GDP. On that, they paid $721 billion in personal federal income taxes, or an average of 18.7% of income. If the remaining 81% of income were paid in federal income taxes, the increment in tax revenues would be more than $3,100 billion, or roughly 21% of GDP. The budget deficit would obviously be closed many times over.
The real point is obvious. The money received by the richest households is vast, and higher taxes on the rich will make a major contribution to closing the deficit. Nobody says that the rich should carry the entire tax burden or that spending cuts shouldn't play a role. The waste in military spending alone is so large that we can and should save at least 2 percent of GDP per year from the defense budget alone.
America's richest households have enjoyed quite a ride in recent decades as they've accumulated a mountain of wealth unprecedented in human history, at a time when much of the rest of society has been suffering. The average income tax rate paid by the top 1% has declined from 34.5% in 1980 to just 23.27% in 2008. During this period, the share of total income accruing to the richest 1% has soared from 8.5% in 1980 to 20% in 2008. The share of total AGI accruing to the top 10% of taxpayers has similarly risen from 32% in 1980 to 46% of income in 2008.
It's really hard to understand what the Journal was thinking in writing its flawed editorial. Whatever that might have been, they have done us a huge service by drawing attention to the astonishing incomes received by America's richest taxpayers, coupled with the declining rates of average personal income taxation paid by this group.
Despite the media machine of the corporate sector and the relentless messaging conveyed by some of the world's richest people, including the Journal's owner Rupert Murdoch and his ally David Koch, the American people are coming to understand the outsized incomes and wealth of the richest Americans and the need for them to pay more in taxes to help close the budget deficit.
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This part should make it clear: "The average income tax rate paid by the top 1% has declined from 34.5% in 1980 to just 23.27% in 2008. During this period, the share of total income accruing to the richest 1% has soared from 8.5% in 1980 to 20% in 2008".
This should make it clear: The top 1% earn 20% of the income (as you point out) but pay 38% of all Federal income taxes, up from 18% in 1980 when the rate was higher. (The top 10% pay 69% of all income taxes.)
Top earners get a large share of their taxable income when they sell stock... If tax rates are high, people don't sell stock, and find ways to shelter their income from taxes.
The tax rate for the biggest taxpayers was 91%.
Ike also got the largest building project in USA history, the Interstate Highway System, financed and well under way by the time he left office.
FYI increasing the top rate to say, 80%, would at least balance the budget.
adverse effect on the economy. However, the rich don't sit still to be shot
at. They move their businesses overseas, change their investment strategies, stay smarter than the average bureaucrat, etc. To want the government to consume an ever greater share of resources, one would have to believe that the government does a better job of allocating resources for economic growth than individuals and industry. History proves otherwise. Obama's defense of all of his poor economic choices is not only to blame Wall St, oil companies and the rich but to imply that they are the cure if only they get squeezed enough. The beauty of his tactic is that he takes no responsibility for the causes of the problems and also off loads responsibility for solutions onto others. His profligate spending (with the compliance of
the Fed) is crashing the dollar and causing food and energy prices to sky
rocket. It's not oil companies, speculators (other than Soros, of course), or
evil doers (other than Ken Salazar). Newsflash: you can't solve a problem when you lie (incessantly) about what the problem is. It's the dollar, stupid. BTW: inflation IS a tax increase on the poor and middle class. Obama, you
lie.
This notion about the Rich paying all the taxes cracks me the eFF up...
They can't borrow at "absurdly low interest rates" - they must pay at least the "Applicable Federal Rate" set by the Department of the Treasury. That rate is currently 4.30% per annum for long-term debt, and it's generally not tax-deductible. If you're a deadbeat that might seem like a low interest rate, but the average "prime" lending rate is only 3.25% right now.
Obama, as we know, caved - because it was the right thing to do, as well as he has no actual core principles - and extended the Bush tax cuts that EVERYONE got until 2012. FACTS.
Conservatives need to be sent to the woodshed like liberals were in the 1980s so that they can get their act together. The stuff they push these days is monstrous and needs to be expunged.
So said an unemployed carpenter who had a lot of good ideas.