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A Fair Share of Taxes?

By: Daniel Horowitz (Diary)  |  November 30th, 2012 at 10:20 AM  | 

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Every year, the Tax Foundation does extraordinary work breaking down and analyzing the macro tax data from the IRS.  We’ve cited their work on numerous occasions in an effort to militate the tax myths propagated by the left.  If you were traveling here from a different country and only heard media reports of our tax code, you would come away with the conclusion that the rich pay no taxes and that the poor and middle class shoulder most of the burden from the income tax.  That perception cannot be farther from reality.

Until now, we’ve been using the tax data from 2009, the last year with complete information.  The IRS recently released the 2010 data, and the Tax Foundation has broken it down in clear and concise categories.

So what about those rich one-percenters?  Well, in 2010, with the full force of the Bush tax cuts, and including all the so-called loopholes and deductions, they paid 37.4% of federal income taxes, even though they only earned 18.9% of the gross adjusted income in the country.  The top 5% paid 59.1% of income taxes, and the top 10% – those earning more than $116,000 – paid 70.6%, yet earned 43.1% of AGI.

Source: Tax Foundation

What about the super-duper rich – the top 0.1%?  They paid 17.8% of the pie, while earning 9.24% of the AGI.

What about the bottom 50% – those tax units (single or joint) earning less than $34,338 on average?  They paid 2.4% of the income taxes, even though they earned 11.7% of the AGI.  But there’s more to the story than this.  The Tax Foundation notes:

Income tax after credits (the tax measure above) does not account for the refundable portion of EITC. If it were included (as is often the case with other organizations), the tax share of the top income groups would be higher. The refundable portion is legally classified as a spending program by the Office of Management and Budget and therefore is not included by the IRS in these figures.

Remember that most of the people at this income level actually have a negative tax liability when the refundable credits are factored in.  The Joint Committee on Taxation reported that in 2009, 30% of all tax units had a negative tax liability.  As such, even the 2.4% of the income tax burden that is indicated above is too high.  And to the extent that they incur any liability, it is mainly those right around the 50% mark.

Nobody is looking to raise the tax burden on lower-income families (although it would be nice to choose between welfare and refundable tax credits, instead of giving out both).  However, can we stop lying about who pays their fair share of income taxes?

Cross-posted from The Madison Project

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COMMENTS

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  • Mr_Ed

    Kyle, I would be interested in your definition of “fair share.” To me, someone who pays 20% of their annual income in federal taxes is paying an “unfair share” compared to someone paying only 10% of their annual income. Further, I would argue that someone paying $30K in annual federal taxes is paying an “unfair share” if others are only paying $10K in annual federal taxes. A truly “fair” share is when everyone pays the same amount, period. Having said that, I would be willing to compromise on a flat tax, which is “fairer” but not truly “fair” in the purest sense of the word.

  • Kyle-MI

    I do not think anyone should be taxed on their essential living expenses (which is what the standard deduction is suppose to be). Anything above that should be taxed at the same rate because it is all profit, in other words nonessential. That should be true whether you make a dollar beyond what is essential or you make a million dollars beyond what is essential.

    What I was trying to argue in my post was that, even by the liberal definition of fairness, our tax system is fair. Of course, the liberals would point to just a few cases where someone with a higher income is taxed at a lower rate then someone with a lower income (their supposedly biggest example is Warren Buffet). Strangely, their solution is to raise everyone’s tax rate for that bracket of income, even those who are paying a higher rate. That is a lot of collateral damage and seems unfair to me. I suspect, however, it is all just a smokescreen to argue for higher taxes in general.

  • rkinroanoke

    It is interesting to look at the tax rates historically.

    In 1980, there were 16 steps with the top marginal rate at 70%.

    Even as late as 86 (Reagan’s changes phased in) there were 15 steps and a top marginal rate of 50%.

    Then in 88 only two rates (15 and 28)

    By 91, there was a 31% rate and by 93 we were back to 5 steps with a top rate of 39.6%

    The “Bush Tax Cut” Rates had 6 steps and a top rate of 35, which is where we have been for a decade; though with enormous discussion and hand ringing.

    All of the changing is quite ludicrous. As my dad (and many of my engineering professors) used to say K.I.S.S. If you don’t know what that means, you didn’t learn enough in school. It is one of my two favorite acronyms. The other is TANSTAAFL!

  • http://www.bigcontrarian.com Jack

    I’m not sure where you reach that conclusion, Kyle. Nothing about the Tax Foundation’s data implies or specifies what the average effective rate of tax is for the top 1%. It fact, because the Tax Foundations data excludes Social Security and Medicare tax data, it’s figures are misleading as to the overall tax burden of earners.

  • ragstoriches

    What would make this chart even more impactful is to correlate the percentage of government services that each tax bracket is eligible for and/or consumes.

  • norris

    Just to be fair I want a head tax on every tax filer of $10 per month ,now everyone pays income tax that’s fair. Along with this plan all tax increases would be on the head tax and all cuts on the income tax. One more thing, we should not do is refund more than a taxpayer has sent to the government.

  • kowalski

    It’s a nice thought in the abstract but it’s unenforceable. If you try to enforce it you’ll wind up spending more money than you collect. The upper 1% are easy pickings for the IRS: they’re easy to find, they know who they are, and comparatively speaking there aren’t that many of them. When you get into the business of going after 40 or 50 million people to collect a couple hundred dollars each in taxes, you can see what your problem is: You’ll need tens of thousands more people at the IRS, all of whom you’ll have to pay. And what you’ll receive is a trickle, and in order for the enforcement to have teeth you’ll have to try and exact some kind of penalties from the delinquents.

    Taxes are not contributions. They are the government forcing you to give them a part of your money. You might “ask” low income people to “contribute” but you’re not going to get much of an answer.

    People who can’t pay their electricity bills because they’re living below the poverty line aren’t going to be able to write a check to the government, for the very good reason that many of them don’t have bank accounts. All that will happen is that you’ll create a new class of tax criminals and a new subagency of the IRS that spends billions of dollars a year chasing money it cannot recoup.

  • kowalski

    By the way, that doesn’t mean the states across this fruited plain aren’t trying to get the full grand from each of the poor through other means. All you have to do is understand where the money from casino gambling goes, and take a trip to a casino sometime. Look at the little old ladies on respirators with oxygen tanks, and the people who are playing the penny slot machines. Every Democrat across the land wants to have those casinos because they know where the money goes, from the people on fixed incomes and the guys who just got bailed out o’ jail last night: to the General Fund.

    You’ll find that there aren’t many financial advisors on staff there at the casinos. They don’t say to people: “You know, you just dumped this month’s rent into these slot machines. Maybe you should have invested it in this mutual fund instead.” But it’s not Zexy. Casinos are Zexy.