Monday, March 14, 2011

The rich don't pay their fair share... unfortunately that's true.

There’s an old saying; A picture is worth a thousand words. Pie charts will likely never be confused with great art in terms of story telling, but they have a way of making complicated issues clear. Income taxes are one of those things that are naturally difficult to grasp and the issue is made that much more opaque because liberals love to obscure the facts.

One of the shibboleths of the left is that the rich don’t pay their fair share of taxes. One of the more amusing segments of the 2008 Presidential campaign involved Neal Boortz asking then Democrat hopeful Dennis Kucinich two simple questions:
  1. What percentage of total income is earned by the top 1% of income earners?

  2. What percentage of total federal income taxes are paid by the top 1% of income earners.

Congressman Kucinich answered: He thought the top 1% of income earners earned 60% of the income and paid about 15% of the taxes. He was a little off. In fact, the top 1% of income earners earn approximately 17% of all the earnings in the country. That’s certainly higher than the 1% they represent of the population but a far cry from Congressman Kucinich’s 60%. More astounding however, is that they pay fully 39% of all of the federal income taxes - according to a 2009 Congressional Budget Office report. The below chart demonstrates clearly the absurdity of the notion that the rich do not pay their fair share of taxes.

The first chart shows that the rich do indeed pay far more than their oft cited “fair share” of income taxes. Not only that, it also shows that the bottom 40% of wage earners actually have a negative tax rate and get money back from the government in the form of income tax credits!

Another of the left’s arguments is that the lower income wage earners pay a disproportionate amount of the Social Security / Medicare tax. That too is false. The second chart states that the top 10% of wage earners pay 43.5% of all social insurance taxes while the bottom 40% pay just 15%.

Why does any of this matter in the first place? The third chart (taken from a 2010 report from the Tax Foundation) demonstrates why…Jobs. It compares wage & salary, capital gain, and dividend income for all income earners. As you can see, for the 80% of income earners below $200,000 per year, wages (i.e. a job) make up almost their entire incomes. Without jobs that someone else creates they would have no income... except government transfer payments.

At the $200,000 and above level, business and dividend income starts to take off and by the $1,000,000 and above level the three are almost equivalent. Those are the telltale signs of success. Those people earning those $200,000 and above incomes are the people creating the jobs that employ most of the remaining 80% of the population.

Put another way, jobs are not created by wage earners. Jobs are created by entrepreneurs risking their capital to start businesses… And those entrepreneurs are the usually found in that $200,000 and above group. The businesses they start generate 65% of all new jobs created in the United States.

While the first two charts debunk the myth that the rich do not pay their “fair share” the above chart demonstrates why it matters: The rich are the ones starting small businesses and creating jobs and prosperity.

Myths die hard, particularly when their proponents willingly ignore the facts. The myth that the rich don’t pay their fair share should soon be headed the way of the global warming hoax. Clearly it is the people at the upper end of the income spectrum that are being treated unfairly. They are not paying their fair share... They are paying more. Not only are they responsible for 2/3 of all new jobs created, but in return they are rewarded with being allowed to keep even less of their income as they become more successful. Perhaps as more Americans examine and understand what it takes to generate and sustain a dynamic and growing economy the “tax the rich” cries will begin to fall on deaf ears. That’s exactly what America could use right now, a reinvigorated entrepreneurial class striving to put more money in their pockets… and generating millions of jobs in the process.

5 comments:

  1. the graphs are misleading. In straight income numbers, they are paying less then their actual fair shares. The percentile becomes inflated due to capital gains and dividends (which are understandably taxed higher, but are lumped into the income category). Those graphs are numbers out of context. Creating 2/3rds of the jobs isn't saying much with the amount of wealth and power the rich have.

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  2. The problem of wealth accumulating at the top is not just that it leads to a larger gap between the rich and the poor. If the rich got richer and then paid some of their wealth forward to all those who were not so lucky the United States might find itself in a better and more stable situation today.

    However, according to Salon.com, the exact opposite is true. Rather than making more and paying more, the super wealthy are paying less. America's super rich use the country's infrastructure, markets, consumer base, education system, and lack of government regulation to become wealthy and successful. After reaching the top they fight to make sure they have to give back as little as possible to the society in which they live."
    http://www.economyincrisis.org/content/income-inequality-hurting-us-economy

    How have the tax cuts of the past decade helped create jobs?

    Bush On Jobs: The Worst Track Record On Record
    http://blogs.wsj.com/economics/2009/01/09/bush-on-jobs-the-worst-track-record-on-record/


    What are the wealthy doing with their money?

    "Rather than investing in the U.S., they are putting more and more of their money abroad.


    Associated Press
    The U.S.S. Capital heads for foreign markets.
    A new survey by the Institute for Private Investors of families with $30 million or more of investible assets showed that the families have one third of their assets overseas. One in five wealthy families has more than half their investments overseas. Most of them are buying overseas stocks, while they also are buying into hedge funds and private equity with exposure abroad.

    Additionally, wealthy investors are moving away from the U.S. dollar. The IPI study showed that one quarter of respondents are managing currencies or hedging currency risk.

    http://blogs.wsj.com/wealth/2011/05/18/the-rich-are-moving-more-money-overseas/

    Business Is Booming
    America's leading corporations have found a way to thrive even if the American economy doesn't recover.
    http://prospect.org/cs/articles?article=business_is_booming

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  3. To the first comment: your assertion that capital gains and dividends are taxed at a higher rate is complete and utter nonsense....the short term rates are exactly the same as the income tax rate of the taxpayer (top rate 35%) and long term rate is 15%.....and the dividend rate is 15%.


    Accumulation of wealth has little to do with luck, in response to the second comment, and there has always been a gap between rich and poor...mostly due to behavior, the rich do things that preserve and build wealth...investment, entrepreneurship, living on less than they earn, etc.....the poor do the opposite.....hold large amounts of consumer credit at high interest rates, purchase unneeded items beyond their ability to pay, waste time, money, and opportunity in pursuit of temporary amusement.....

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  4. The pro side concedes the argument halfway through. https://www.youtube.com/watch?v=irHgknaS2jA

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  5. You lose all credibility when you discount climate change. Anyways those are jobs that do not pay livable wages, people get on food stamps etc to make ends meet. Wages were higher in the past when curved for inflation and productivity gains. Poverty rises, meanwhile they make record profits. A few hundred thousand people live like kings. Everybody else fills the bill in terms of work. The actual intrinsic value of the system of commerce is the workers.

    ReplyDelete