I find it very upsetting that the White House would put out a press release claiming billionaires pay 8% in income taxes and in the process creating its own definition of taxable income.
The Internal Revenue Service recently released its income and tax statistics for 2020, and they show the top 1% of earners paid 42.3% of the country’s income taxes. That’s a two-decade high in the share of taxes the 1% pay.
That same 1% reported earnings of 22.2% of adjusted gross income (AGI) on their tax returns, which means the share of taxes paid by the top 1% as a group is roughly double their share of income. Whatever else you say about the current tax code, there’s no denying that it is steeply progressive.
The nearby bar chart [see story in WSJ] is based on a Tax Foundating analysis of the IRS data for 2020. Note that the top 5% of earners reported 38.1% of total AGI but paid 62.7% of all income taxes. The bottom 50% of earners reported 10.2% of AGI but paid 2.3% of all in income taxes.The Wall Street Journal March 8, 2023
I find it outrageous that many of our left oriented politicians tell the American people they can have greatly expanded social programs paid for by the “wealthy.” That some Americans don’t pay their fair share.
Look what happened when a 30% VAT was proposed – in lieu of income and estate taxes. Again Americans were deceived when only the 30% side was presented.
As I have said before – too many times perhaps – if Americans want more and more social programs, they must be willing to pay as they do throughout Europe.
Long ago, in 1976, in one of my economics classes focused on income and other taxes, I asked the Professor who was teaching my class in Public Finance why the wife of Nelson Rockefeller, then Vice President of the United States, was worth ~3 times as much to the federal government each year, when compared to my wife. The Vice President’s marginal income tax bracket was 70%, mine was 22%. I believe the personal exemption was $750 and his standard deduction was $2,800 (the maximum) while mine was $2,100 (the minimum). So, by excluding $3,550, the federal government provided him tax relief of ~$2,500 while I only got ~$800 or so.
Even if you don’t like my calculation, clearly, deductions and exemptions for the Vice President reduced the dollar amount of his tax bill much more than the same deductions and exemptions for my family.
People really do believe the income tax system isn’t progressive because of all of the loopholes, and special provisions. They believe the lies are told by people who would differentiate income taxes between unrealized and realized gains.
We don’t need a VAT. We need a flat tax on all income, from whatever source derived, at 15% – with no exclusions, no exemptions, no step up in basis, etc. For the vast majority of Americans whose only income is derived from wages, interest, dividends, and capital gains, that is so transparent that it should obviate the need to file a tax return. Similarly, assuming withholding is a requirement, people know everyone is paying their “fair share” – the same percentage of their income.
With respect to unrealized gains to date, we should apply a 10 year “forward average” calculation (divide the gain by 10, calculate the tax at the 15% rate, then multiply it by 10 to arrive at the total tax due), then give the individual up to ten years to pay (with appropriate added amounts for interest).
In subsequent years, include all gains and losses (realized or not as of 12/31) for the year, and where not realized, give the individual up to 5 years to pay (with appropriate added amounts for interest).
I would make similar changes for tax-qualified and non-qualified deferred compensation, pensions, etc. – with 10 year averaging (and plan loans for withholding purposes) applied to conversions to a Roth basis.
I’m not in the camp that says the wealthy are getting by easy but I am also not in the camp that is bemoaning the fact that they pay a higher amount of income taxes than the lower half of the population. The income tax is based on income and is not based on head count. If your annual countable income per the tax code is 1 million, then go to the tax tables and pay what is due, if it is 50,000, then do the same. There is no reason to get incensed over the higher tax paid by the one over the other. After all, one made 20 times as much.
The tax burden is not so onerous that it keeps billionaires from becoming billionaires in the first place. At some point we have to leave some money down at the lower levels for the peasants.
The Scandinavians voted for more generous government-provided benefits and the necessary higher taxes for all members of society to pay for them. In our nation, the politicians on the left promise we can enjoy the same, but insist that only the “rich” need to pay the bill. Sounds like vote buying to me.
I agree, sort of. Unrealized capital gains is a Pandora’s box you don’t want to get into, and totally unnecessary. My measly taxes are too complex with just dividends and interest.
I disagree that income taxes are sufficiently progressive. And I don’t know if WSJ is intentionally disingenuous when they say…
“The bottom 50% of earners reported 10.2% of AGI but paid 2.3% of all in income taxes.”
It’s tru…ish, except 90+ percent of that group paid no income tax at all, and most a negative income tax. And they won’t pay a VAT tax either, because they can’t. No blood from a turnip.
The “wealthy”, on the other hand have the ability to pay much more than they do now, and receive much more in the benefits of government expenditures. The trouble with billionaires is there are not enough of them. Even taxing them a hundred percent won’t run the government for long. However, “progressive”ly increasing tax rates on the rest of the fourth and fifth quintiles will get us there with relatively small sacrifices. I am barely above median income, and a five, or even ten percent effective tax increase would be acceptable, especially if it results in more healthcare security to myself and my relatives and friends. My dentist has two Corvettes (one for inclement weather) AND now a Ferrari. I swear I’m not jealous, I couldn’t even fit in any of them. But I’m sure he could handle a ten percent effective tax increase. And I would be willing to vote him (and me) that increase, given the chance.
Stephen Douglas, I don’t think you know how a VAT tax works. It is a tax on consumption, like groceries, cosmetics, haircuts, you name it, everything you buy can be taxed unless it is exempted by law. Believe me, I worked in the UK when VAT was introduced. I personally hate the VAT, but that’s just me.
“One criticism of this tax policy is that lower-income individuals end up spending higher proportions of their earnings on goods. On the other hand, VAT increases tax accountability at every level of the supply chain and prevents tax evasion.”
Except, at the very lowest levels, individuals won’t pay more, simply because they can’t. They can’t afford to survive now without subsidies from the government. Higher VAT will simply be offset by higher subsidies. It’s inevitable.
You are semi-correct that the poor will not pay as much as with a VAT tax. A rich person would have to pay 20% VAT on a new Ferrari while the working poor would have to pay 20% on a used KIA. The working poor would pay much less.
But I am curious how the wealthy “receive much more in the benefits of government expenditures.” The wealthy do not get welfare, food stamps, heating assistance, free school lunches, free tax help, low cost medical care for the kids under CHIP, often make too much money for some student grants and loans, make too much for earned child income tax credits, and a host of other income based grant and tax credits. I know of no program that based on a higher income that the government gives the wealthy more money or tax credits.
I am not saying that the working poor have it easy, just that some people have to pay full freight.
“receive much more in the benefits of government expenditures.”
Infrastructure mainly, and public services like police and fire, education, etc. Higher income people are more likely to use them for business and for pleasure than lower income. One example which has been studied extensively is National Parks:
“…people with high family household income were three times more likely to visit national parks compared to people with lower family household income.”
And VAT taxes… if a low income household pays no income tax now, and in fact receives EITC or other social welfare, they may technically pay VAT on everything they buy, but it will be offset by higher transfers from social welfare. Has to be. The household couldn’t survive otherwise. No blood from a turnip.