The Truth about Taxes

[Anonymous]

Since there were some expressing disbelief that the top 10% of incomer earners in the U.S. pay 70% of the federal tax bill, here is the data to back it up. The second article analyzes it. All I did was Google to find these.

http://www.ntu.org/main/page.php?PageID=6

http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

http://www.heritage.org/research/features/BudgetChartBook/fed-rev-spend-2008-boc-T4-The-Top-10-Percent-of-Income.html

As of 2006 from the first link,

Percentiles Ranked by AGI
AGI Threshold on Percentiles
Percentage of Federal Personal Income Tax Paid

Top 1%, $388,806, 39.89%
Top 5%, $153,542, 60.14%
Top 10%, $108,904, 70.79%
Top 25%, $64,702, 86.27%
Top 50%, $31,987, 97.01%
Bottom 50%, <$31,987, 2.99%

So the tax code is already highly progressive. Yes, the rich do pick up a far greater portion of the federal tax receipt than anybody else. This is why if you want to give a push to the economy you have to "cut taxes on the rich" because the rich by far pay more taxes than anybody else does. A middle class tax cut would just make the tax code even more progressive and unfair. When you cut taxes on the rich, that gives them more money to invest in business which fuels job growth, and even if they do buy a second home or a new yacht, guess what? That fuels job growth for the middle glass who are busy building those homes and yachts, along with the engineers that design them. Business investment in all sectors can fund new projects and create jobs, and even help new businesses get started. The best way to help the middle class is with strong investment from those with the money and a very robust and strong job market for the greatest opportunity. And the best way to do that is to reduce the heavy tax burden that the rich are already shouldering. The concept was originally called "trickle down" aka "Reaganomics" if anybody remembers that in the 80's. Despite Reagan widely being called an idiot, its worked. The economy has largely been quite strong since the end of the 70's with a few brief recessions and/or slow downs.

Sadly the U.S. is at risk of losing its economic dominance because other countries have studied our methods and one-upped them and now have business and corporate tax rates that are more attractive overseas than they are in the U.S. This only encourages business to setup shop and headquarters overseas and not here, which takes jobs and business away from the U.S. market. Did I read correctly somewhere that McCain wants to cut corporate tax rates from something like 35% to 25%? How evil of him to cut taxes on "Big Business" you say? Well this is the reason why. It's difficult to keep attacting new businesses and new opportunities for growth and job creation in the U.S. when other countries are far more attractive from a tax perspective than the U.S. is. Why setup shop in the U.S. at a 35% tax rate if you could do it overseas at only 30%? What if McCain dropped that to 25%? Where do you think businesses would want to setup shop then?


Food for thought.

[Anonymous]

By your logic a flat tax would be "progressive". They pay more in taxes because they make more money. And since the income disparity in this country has only gotten larger they are making up a larger fraction of the tax receipts.

If trickle down worked, the income disparity would not be getting bigger it would shrink. And companies are moving overseas as much for labor cost issues as anything else. Why pay someone here $10 an hour when you can pay a third-world employee pennies an hour. I highly doubt that a 10% change in the business tax rate is going to overcome the significant savings of labor costs.

[Anonymous]

That statistic only tells part of the story. These were posted on the same post that you are referring to:

The top 10% of earners also own 85% of the wealth in this country. (Yes, I know that the top 10% only earns 46% of taxable income, but remember that that figure is taxable income - not actual income. I think most in the top 10% (those making 150K+) can admit that a nice chunk of our income isn't taxable.)

Also, in 1999, the top 10% were paying 66.45% of the taxes. In 2006, we paid 70.79%. In 1999, the bottom 50% paid 4% of the country's taxes - now they pay 2.99%. Why? Because even with the tax cuts, the income of of the richest half of this country is well outpacing the poorest half (in other words, the richer are getting richer.)

And fwiw, this is the average tax cut, by percentage of taxable income, that various income levels received:

50K/yr - 1.34%
100K/yr - 2%
500K/yr - 3.12%
1MM/yr - 3.77%

Those are from 2003 - most of the tax cuts for the wealthiest portion of or country had not taken effect yet. And again, that is taxable income. I doubt many making 50K/yr are able to throw $15K/yr into a (most likely matching) 401K plan.

[Anonymous]

OP, you cannot just look at corporate or personal income taxes (and you only quote data on the latter) - you have to look at the full breadth of taxes and fees that are imposed on individuals and corporations before determining which country has more/less attractive taxation. I work with developing countries to improve their policies/climate for private sector led development. Many with low corporate tax regimes have very high indirect taxes that are, ultimately, "regressive" in nature (tariff duties, sales or value added taxes, stamp duties, municipal "fees" that are a tax in practice, etc.), as well as others (property taxes), not to mention the "costs" associated with bureaucracy and corruption, which is an unofficial tax on enterprises. So, a 10% reduction in corporate taxes in the US (where other taxes are comparatively lower) is only going to have an impact on the margin. So I guess "trickle down" economics is the right name...a trickle, indeed. I know a lot of low personal/corporate income tax jurisdictions - I can send you a list if you want to relocate to a more "attractive" jurisdiction.

So, the next time you are in the mood for "number crunching", please at least collect all the numbers...

Investment moves overseas for many reasons and taxation is way down on the list of drivers. The primary source of cost savings are, as another PP pointed out, labor costs. And anybody who wants to keep such low wage jobs in the US should be willing to have the same standard of living as the average Bangladeshi or Cambodian. Our economy grows because we specialize in economic activities that reflect our comparative advantage (technological leadership, human capital, etc.) - these activities are knowledge based (R&D, design and engineering, professional services). And for those who think that we now have to "compete" with China even in higher tech industries, such as electronics, recent data shows that China's "value-added" is only on the order of 4%, i.e. only 4% of your "Made in China" DVD player is earned in China - most of the value created is by higher-income countries such as the US (in the form of design and development, marketing, etc.). In order to maintain our competitiveness, we should be looking harder at our educational system that can no longer keep pace with the demands of our technologically advanced economy (which is why we must import IT and other high skilled labor), not at taxation.

I would rather see a reduction in military spending (and end to an unjust war that has been a crime against humanity...but I digress) to balance our budget again (thanks, Mr. Bush, for "gifting" us with the highest deficits in history) and spend some of that hard-earned cash that is paid by the top 10% of wage earners on more worthy and productive efforts, such as education and healthcare.