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Understanding How Class Warfare Fails to Solve Our U.S. Debt Problems

By: Justin Spagnolo (Diary)  |  July 14th, 2011 at 06:32 PM  | 

RESIZE: AAA

Looking at 2008 IRS report of income taxes:

The top 1% of individual tax payers earned roughly 20% of all reported AGI (adjusted gross income).  Let’s break that down shall we?  The implication is that if you are lucky enough to be in the top 1% of earners of taxable AGI, that means you should be able to afford to pay more taxes to help out the less fortunate right?

There’s one problem… when you take a number like that, you’re hiding behind a percentage.

The top 1% of tax payers is roughly 1.4 million people.  To qualify for the “top 1%” group, you’d have to earn roughly $385,000 AGI annually.

What You Should Know is that the top 1% of income earners paid a total of 38% of all individual federal income tax revenue ($410,898,035,220.00 or $411 Billion of 1.1 Trillion collected in individual federal tax revenues for 2008).

Now if you take in the top 50% of income earners (which includes both the top 1%) They paid 97.3% of all individual federal income tax revenues.  If you take out the 38% of all revenues from the top 1%, the remaining 49% of top 50% earners… pay 59% of all individual federal tax revenues.  And who are these dastardly high earners of the “above average earners”?  Why they’re the folks that earn somewhere between $384,000 and $33,000 (that’s not a typo, that’s $33,000).  If you earn $33,000 you’re part of the “above average pay” crowd.  Maybe we should be taxing you more too right?   And what of that bottom 50% that pays only 2.7% of all individual AGI tax revenues?  They(about 70 million) contribute to 12.75% of all reported taxable AGI (which is $720Billion of the 5+ Trillion of taxable AGI in 2008)

So… say we ignore the Laffer Curve all together and decide that we should tax the top 1%… at 100% of earned of AGI (adjustable gross income).  That would take us (based on 2008 revenues reported) to a total of federal income tax revenues to roughly a WHOPPING $1.85 Trillion. (The hell you say? We gain only a total of $750 Billion? Yeah, that’s what I’m saying).

So here are the real numbers: 20% of all individual taxable income is $1,130,463,019,000.00 according to the 2008 numbers IRS reported income. That’s a large number so I’ll shorten it for you… that’s $1.1 Trillion.  Another way to look at it is there is roughly $5+ Trillion in total reported individual adjusted gross income of all individual tax payers, all tax brackets of the which $5+ Trillion is taxable, 20% of that ($1.1 Trillion) is earned by individuals in the top 1%.

Here’s the problem with our hypothetical situation of taxing the top 1% at 100% of total Adjusted Gross Income, we will barely cover our annual spending deficit that bounces between $1.3 to $1.5 Trillion.

Now if we get back to reality and understand the simple concept behind the Laffer Curve… I ask are you willing to see what happens when the top 1% of earners pay 100% of adjusted gross income…?

If so… maybe I should restate the gain of doing such an inane action: That $750 Billion that we would ‘potentially’ gain… will go to paying roughly .051% of the principal of our total debt $14 Trillion (supposing we’d actually attempt to pay down the debt)…   But rather… what would likely happen is the politicians would see this new $750 Billion in revenue as an opportunity to “spread the wealth”.  They’d trumpet long and loud about a “budget surplus”.

You see… there’s but one way to reduce our debt… which is to do each of the following:  cut entitlement spending, cap non-discretionary spending, and increase revenues.

In order to cap deficit spending its going to require some honest folks to pull up their adult pants, and cut entitlement programs that will force people to stop relying on the government when its not necessary {and that doesn’t include social security or medicare}.

In addition… to grow revenues, you should attempt to grow GDP, not bleed a dry turnip (as suggested above by raising the taxes on the rich).  To do so, We’ll need some attractive business incentives to do more business in the United States, including reducing tax burdens on corporations and the top 1%. Also enacting policies that reduce the cost to do business in America.

Now I know its not the popular thing to do… well at least not with President Obama, because he’d like to point out that CEO’s with lots of money (presumably members of the top 1%) like to fly around in their private jet planes, and therefore should be able to afford more taxes.  May I ask you Mr. President, how many golf games have you played during your administration, and how many of those games required you to fly out of Washington D.C. to the location?

Now if you want to play class warfare with the top 1% of earners… be my guest… but let me just say, I think its really a lame attempt at envy… or a calculated political lie meant to create division among the people, and to galvanize political support.

{Begin sarcasm}Dang those millionaires… how dare they earn so much, they don’t earn enough for us to pay our debts, or even our deficits… but DAMN THEM TO HELL for not giving away all of their income to poor people!!!{End Sarcasm}

Invective is lame… class warfare is lame… and being asinine about facts is lame.  However, being a divisive, arrogant, hypocritical President… that’s just reckless self promotion.

[cross-posted at thestandardcandle.com]

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  • 6eorge Jetson

    Executive Summary of the 2008 OECD Study

    A study of the progressiveness of household taxes (income plus social security taxes) by the Organisation for Economic Co-Operation and Development charts the percent of taxes paid by the top 10 percent of households in OECD countries and compares that number to the percent of income earned in each country by the same top 10 percent. The U.S. finishes at the top of the list, with the highest tax-to-income ratio of any country. Above are the top countries, as well as the average for all 24 OECD countries studied.

    A little more detail

    Again, I emphasize that household taxes include social security, but?

    Of course, these measures do not include the litany of other taxes households pay in each country, such as Value Added Taxes, corporate income taxes and excise taxes, but they do give a good indication that our system places a heavier tax burden on high-income households than other industrialized countries.

    The inclusion of the Value-Added-Tax, hidden, but passed along to the end consumer, would surely lower the European?s top decile percentage share. I don?t know what to make of corporate taxes, as the US has the highest nominal rates, but GE pays zero on billions of income.

    The Source ($98, I have not bought/read it)

    • Justin Spagnolo (standardcandle)

      We “spread the wealth” more than any other country on the planet, that is certain regardless of the VAT not being considered… however, it goes with the territory when you have an economy that has a lot more wealth available for stealing through inflation and taxation than any other country putting the 10 OECD ratios aside.

      This diary was to emphasize the non-sense around class warfare in the “raise the tax revenues to offset raising the debt limit” argument. I’ve spent too much time explaining this to people, thought I’d hit ‘em in the mouth with the fun with numbers game.

  • xenophanes

    Having more than 50% of the people taking more than they give; depending on the government for some or all of their support; robs the recipients of pride, duty, honor, respect and ownership – ownership of their own future, and of their country. They no longer have a stake in working hard to make the country better. To institutionalize long term unemployment insurance, retirement savings, medical care, steeply progressive tax rates, and a growing list of other things, sets up an imbalance that ultimately cannot be corrected by conventional means. We are reaching that tipping point. Not only will the next generation carry so much debt that it may never be repaid, but they may lack the basic dignity and responsibility for their own well-being, instead looking to the government, needed to sustain growth of any kind. Let’s pray we don’t go past that point, and find some way to return to core values.

    • Justin Spagnolo (standardcandle)

      That lower 50%, a good majority of them are part time workers… I don’t believe we can assume what percentage of them are receiving government benefits…

      Remember they’re only 50% of the tax paying income earners. What’s not reported is how many of the income earners are paying 0 income taxes.

      We know that there’s 5+ Trillion in reported taxable income. We end up with roughly 1.18 Trillion in revenues from taxes paid after all refunds are processed.

      There’s likely a significant percentage of the tax paying bottom 50% that are on the dole from Parents as much as there are some on the dole from the government, and most likely there is some crossover.

      I agree with you 100% that we have reached the tipping point of where we’ve got too many entitlements and promises that we can’t keep up with, while maintaining our deficit spending ratios to GDP. We can’t target inflation any longer, so yeah, we’re at the point where most maxed out people apply for a new credit card so they can take some cash out on loan, just to make their minimum payments.

      The scary part for me is we may have already driven off the cliff, raising the debt ceiling, CCB, and growing GDP may not in the long run be enough… it all depends on what looming bubble(s) are about to explode in the global market… hard to raise the debt limit when there are no takers for loans due to global economic crashes. I remain an optimist though, that if we do what is right, not just necessary, we’ll be able to tackle any challenge.

  • Sirithil

    ….you’d actually lose money. Very, very few people adore their jobs enough to do them for free. Most of the people in that bracket have the resources and intelligence to restructure their income to avoid the new tax, and the rest would simply quit and join the unemployed — why work like a dog for free, when you can sit on your couch and get paid by the feds?

  • Justin Spagnolo (standardcandle)

    of this paragraph:

    Now if we get back to reality and understand the simple concept behind the Laffer Curve? I ask are you willing to see what happens when the top 1% of earners pay 100% of adjusted gross income??

  • Sirithil

    nt

  • Justin Spagnolo (standardcandle)

    I appreciate the added purview.

  • Common_Cents

    He said rolling back tax cuts on the rich would add $30billion assuming they didn’t cut back on work or look at more ways to minimize tax burden.

    Growing the economy has to be priority one. Period.

    Plus, if we want to be globally competitive we need globally competitive corporate tax rates. Companies have billions and billions of profit offshore that they will not repatriate because of high corp tax that would penalize them to do so.

  • Justin Spagnolo (standardcandle)

    I feel like I’m in good company if Boortz is covering the same topic :) .

    We do need to be competitive globally. There’s no doubt about that, but we can’t be competitive if the US is no longer the world reserve currency. At that point, we’ll have to get by on our good looks and charm (not that we can’t), but there’s a reason we’re able to steer our economy away from inflation quite effectively. Unfortunately we’ve run out of that option when we stop paying on the principal of our debt.

    One thing I did not expound upon in the diary is that much of the top 5% are small business owners. They range from 185,000 and up range. Most of their AGI is after they’ve reported their investements, losses, and employee insurances/payroll taxes.

    2 things to take away from that.

    Top earners could be reporting more earned income if there were less tax burdens, and that would increase revenues without raising taxes.

    Additionally, adding tax burdens to the top 5% in general will in fact cause them to directly effect the middle class reported incomes across the board. There is a strong argument that can be made that a lot of capital and liquid assets sit on the sidelines not going into hiring new employees due to tax burdens that are yet to be defined. Most businesses hold back and attempt to re-capitalize during times of uncertainty so they’re in a strong position when the economy comes back and consumer confidence is back up. Not knowing where things might be after all things are figured in, causes a lot of hesitation in hiring full time employees (which tend to be the 33,000+ folks).

    I hope the take away from this diary is that class warfare is a non-starter, and the President is playing the wrong hand. Its clear he’s either incompetent, or intentionally playing a dangerous bluffing game.

  • Ann_W

    When you go to lefty sites, or the one radio station left, you hear this pretty often. It’s getting kind of scary– the power they think they have.

  • Justin Spagnolo (standardcandle)

    but it is trending into social networks… (it was one of these discussions on facebook that launched my efforts in creating this diary, we have to win this debate in front of our friends and family members, if we don’t help everyday people to understand what’s really going on…then we fail).

    I think its just a bit ridiculous for them to think that they’ll ever successfully repatriate and tax any liquid assets from any transnational entity… or from individuals that do their banking in off-shore accounts.

  • Ann_W

    we’ll stop that. And if the people try to move away to a lower taxed country, we’ll stop that, too. Do you think East Germany would be interested in selling the Berlin Wall to us?

    Here in CT (Highest taxed state in the union, we’re pretty proud of that!) they’ve driven many businesses away. So I just saw yesterday in the paper, that they gave a co. a $70 mill. credit to move into the state and create 200 jobs. $355,000 per job– they couldn’t just make a good business environment so businesses will stay and create jobs, and the job holders will pay taxes. They have to punish us bitter-enders making us pay for jobs which may or may not outlast the tax credits. These guys just have such a warped idea of business and job creation. And that becomes scary when they have the power to do things, like the brilliant repatriation ideas that are starting to form.

  • 1stRichard

    So it starts with Class Warfare, Bourgeois and Proletarians, this includes attacks on inheritance, the death tax as prescribed in the Communist Manifesto, a heavy progressive taxation as prescribed in the Communist Manifesto, Centralisation of credit in the hands of the state as prescribed in the Communist Manifesto, we now have Government Motors and such as prescribed in the Communist Manifesto, Government Unions as prescribed in the Communist Manifesto, wealth redistribution as prescribed in the Communist Manifesto, moved toward removing education from the states and nationalizing education as prescribed in the Communist Manifesto, national healthcare as prescribed in the Communist Manifesto and so much more. There must never be compromise, bipartisanship or whatever in moving toward Communism, we should be moving away. Mao with one socialist experiment called the great leap forward, it was crony capitalism government regulation at its worse and reportedly, some estimates from this experiment exceed forty million dead, mostly women and children. Now they are running away from their past failures and turning to a more open market capitalist society. The results of this should be clear. What is also clear is that the US is attempting the same crony capitalism government regulation and possibly the same outcome, every example of this crony capitalism ends in disaster.

  • Justin Spagnolo (standardcandle)

    again the point of this diary is to dismantle the myths behind the calls for raising taxes to solve our debt crisis in simple terms… that shows the President’s tactics are implicit demagoguery for those that seek to divide the people upon socio-economic distinctions.

  • Justin Spagnolo (standardcandle)

    I love that there are several diaries in the “member recommended diaries” section right now that tackle the overall debate on what to do with deficit spending, and debt management.

    Many of those up there, beside this diary, are explicit in dismantling the several arguments being made by the left.

    The left is attempting to create an atmosphere of crisis.

    They talk about:
    1. Government shutdown, services immediately stopping, and checks not written.
    2. That if we don’t raise the debt ceiling by Aug 2nd then world economies will meltdown overnight.
    3. That the GOP should play ball, or it will cost them 2012
    4. That we’ll lose our Aaa rating with Moody’s if we don’t raise the debt ceiling, but they don’t acknowledge that Moody’s.
    5. Finally, that the rich should magically come up with more liquid assets to hand over to the government to help us become solvent.

    The people are not stupid, but they do need to hear each argument in the opposition. They need to be informed on each issue. We’re doing so at Redstate, and hopefully we’re taking action as ColdWarrior’s perpetual reminder is that we must win at the local level.

    Erick is right, we must HOLD THE LINE. We must help our representatives to HOLD THE LINE. Part of that is dismantling the debate of hotair coming from the Democratic Party, and especially the current presidential administration.

  • 1stRichard

    Dependence on government, when the Government has the power to spread wealth it creates monopolies, both social and economic that are dependent on this false wealth, this is slavery and chains of bondage. I am in Liberal La-La Land, the Happy Valley of Western Massachusetts and socialist enclave of five colleges and I see it all the time. This is also the former City of Homes where Wade Rathke and others started and it is now the welfare city, the city of entitlements. That demagoguery which is amplified here by the propagandist news media in to very real reactions, chains are being pulled. Symptoms of this affliction can be mild to extreme with the most extreme walking aimlessly, glossy eyed in fight or flight mode. Truth and reality are matters of irrelevance when bonded to the government, the only thing that does matter is that chain. You need to break that chain first and then you can dismantle the myths.

  • Justin Spagnolo (standardcandle)

    1. Move. Not that a change in geography will solve all problems, but it sure sounds like you either need a long vacation, or a permanent change in your environment. I get cynical, but I think you’re on the edge of cynical and madness.

    2. Winning the hearts and minds of people isn’t a singular event. It requires consistency, patience, and a willingness to listen, understand, and communication that provides an enlightenment. If you take away the “chain” you just have an angry animal unleashed.

    Truth is freedom. There is no other path to liberty than by living for the truth.

  • http://theminorityreportblog.com Repair_Man_Jack

    1) “The Rich” is always defined as “That b—-rd neighbor who has $1 more than I do.”

    2) You get the pittance Neal Boortz talked about in return.

    It is popular because losers see it as a way to get payback.

  • 1stRichard

    While I am using the most extreme example people around here, not everyone is like that, just the majority. I do agree that those not accustomed to such an extreme left belief they would run away but to us natives we simply stay on our side of the street. However, we do sometimes make exemptions sometimes.

    I must disagree that a ?chained? person is much more of an angry animal. Furthermore there is no winning the hearts and minds if that person is chained. Here is our local Tea Party attempting such confronting the demagoguery of the Tea Party being racist.

    Warning; graphic liberal tolerance

    http://youtu.be/UAYYXCVz4Gk

    As you can see this is an angry animal and no winning the hearts and minds of that person. This is not to say they are all this bad as there is the mild to most sever, we just so happen to have a majority of most sever around here. I am one of the founding members/organizers of the Tea Party here and yes, we gave you Brown 41. Trust me, we know demagoguery and these ?chains? are especially clear from where we are standing.