August 20, 2012

Please read this analysis and decide for yourself - are the rich paying their fair share?  Do we need to force them to pay more? Are direct government taxes hardest on the poor and middle class?

Summary: The central theme of President Obama’s tax policy has been that “the rich” do not pay their fair share of federal taxes, and the middle class pays more as a result. But a report issued by the Congressional Budget Office (CBO) in July 2012 shows this to be false.

What the Rich Pay in Taxes:
According to the CBO, the top 1 percent of income earners paid 39 percent of federal individual income taxes in 2009, while earning 13 percent of the income. That is down from 2007, before President Obama was elected. In 2007, after 25 years of Reagan Republican tax policies, the top 1 percent paid 40 percent of federal individual income taxes — more than double the 17.6 percent share of taxes paid by the top 1 percent when President Reagan entered office in 1981.

The CBO also reports that:

• In 2009, the bottom 40 percent of income earners were paid cash equal to 10 percent of federal individual income taxes by the Internal Revenue Service (IRS), net of any federal income taxes they paid.
• In that same year, the middle 20 percent of income earners — the true middle class — paid a net 2.7 percent of total federal individual income taxes, while earning 15 percent of before-tax income.
• And the top 20 percent of income earners — those earning more than $74,000 — paid 94 percent of federal individual income taxes, 85 percent more than the share of national income they earned.

Altogether, the bottom 60 percent of income earners, which includes the middle class, paid zero percent of total federal individual income taxes as a group. Instead, as a group, they received net cash payments from the IRS.

Who are the rich? Is it the "1 percent" or is it the 20 percent? In the past, and based on the rhetoric of the current administration, the upper 20% are the "very rich" and the "ultra rich" are the 5% and the filthy-dirty-rich ("extreme rich") are the 1% - and we (yes, when clients pay, my wife and I together are in the 20% since we earn more than $74K a year - at least officially), so we are all evil b****** who are not paying our fair share.

Yes, here is the way it shakes out:

Upper-upper 20% - very rich (upper class)	- extremely evil and oppressors	- 54% of national income	94% of US income tax
Lower-upper 20% - rich (upper class)	- Evil and oppressors	- 19% of national income	3.3% of US income tax
Middle 20% - middle class	- salt of the earth, overtaxed	- 15% of national income	2.7% of US income tax
Upper-lower 20% - poor (lower class)	- oppressed	- 8% of national income	NO income tax paid : PAID by FedGov
Lower-lower 20% - very poor (under class)	- extremely oppressed	- 4% of national income	NO income tax paid : PAID by FedGov

According to one study, 51% of Americans paid no income tax at all in 2009, and the number appears to be growing. Apparently, that lower 40% actually GETS 10% of the total federal income taxes paid TO them as subsidies: "earned income tax credit" and other special credits. There are a few people in the lower 40% who DO pay income taxes. Perhaps this is because they have withholding of taxes and do not file properly, so the FedGov keeps the money - and doesn't pay out the subsidies. But for the bottom 20%, their federal taxes are paid at an effective rate of 1%, BEFORE the EIC and other things kick in. Compare that to 11.1% for the middle 20%, and a staggering 29% for the upper 1%.

The article suggests a radical solution (assuming wrongly, of course, that taxes are moral and necessary: eliminate the piddling 2.7% of taxes paid by the middle class (middle 20%) and adopt a straight-forward flat tax for the upper 40% who make 72% or 73% of the national income anyway, and already pay 97.3% of the federal income tax. I suppose this would work, and let the middle class become "oppressed" like the lower classes are. But in the interests of "fairness", why not eliminate the 3.3% of tax paid by the second 20% (the "lower-upper") and ALSO eliminate the -10% that is paid by the FedGov to the lowest 40%, reducing federal taxes so that the upper 20% would pay slightly less than they do now - and in the form of a fair tax. That way we clearly separate the oppressors from the oppressed: and NO one with an annual income of less than about $75,000 would ever have to pay a dime in federal income tax!

That ain't gonna happen, of course - there are too many reasons Congress, the White House, and ESPECIALLY all the bureaucrats (not just in the IRS) want to make EVERYONE file tax returns and run scared of the IRS. They can call it social engineering; I call it tyranny and job security. Not just for the tens or hundreds of thousands of IRS agents and other treasury agents and the FBI "fraud" detectives looking for tax evaders and of course the prison guards and GSA and the rest, but THINK about what a huge business dealing with tax return preparation and all the rest is. The H&R Blocks and Liberty Tax and all the accountants and bookkeeping firms and all the non-profit (and for-profit) "we can help with your IRS problems" businesses that are out there.

The next time someone tells you the rich need to pay more, show them the facts.