Politicians exploit public ignorance. Few areas of
public ignorance provide as many opportunities for political
demagoguery as taxation.
Today some politicians argue that the rich must
pay their fair share and label the proposed changes in tax law as tax
cuts for the rich.
Let’s look at who pays what, with an eye toward attempting to answer this question: Are the rich paying their fair share?
According to the latest IRS data, the payment of income taxes is as follows.
The top 1 percent of income earners, those having
an adjusted annual gross income of $480,930 or higher, pay about 39
percent of federal income taxes. That means about 892,000 Americans are
stuck with paying 39 percent of all federal taxes.
The top 10 percent of income earners, those having an adjusted gross income over $138,031, pay about 70.6 percent of federal income taxes.
About 1.7 million Americans, less than 1 percent
of our population, pay 70.6 percent of federal income taxes. Is that
fair, or do you think they should pay more?
By the way, earning $500,000 a year doesn’t make one rich. It’s not even yacht money.
But the fairness question goes further. The bottom
50 percent of income earners, those having an adjusted gross income of
$39,275 or less, pay 2.83 percent of federal income taxes.
Thirty-seven million tax filers have no tax obligation at all. The Tax Policy Center estimates that 45.5 percent of households will not pay federal income tax this year.
There’s a severe political problem of so many
Americans not having any skin in the game. These Americans become
natural constituencies for big-spending politicians. After all, if you
don’t pay federal taxes, what do you care about big spending?
Also, if you don’t pay federal taxes, why should
you be happy about a tax cut? What’s in it for you? In fact, you might
see tax cuts as threatening your handout programs.
Our nation has a 38.91 percent tax on corporate
earnings, the fourth-highest in the world. The House of Representatives
has proposed that it be cut to 20 percent—some members of Congress call
for a 15 percent rate.
The nation’s political hustlers object, saying
corporations should pay their fair share of taxes. The fact of the
matter—which even leftist economists understand, though they might not
publicly admit it—is corporations do not pay taxes.
An important subject area in economics is called
tax incidence. It holds that the entity upon whom a tax is levied does
not necessarily bear its full burden. Some of it can be shifted to
another party.
If a tax is levied on a corporation, it will have
one of four responses or some combination thereof. It will raise the
price of its product, lower dividends, cut salaries, or lay off workers.
In each case, a flesh-and-blood person bears the tax burden.
The important point is that corporations are legal
fictions and as such do not pay taxes. Corporations are merely tax
collectors for the government.
Politicians love to trick people by suggesting
that they will impose taxes not on them but on some other entity
instead. We can personalize the trick by talking about property taxes.
Imagine that you are a homeowner and a politician
tells you he is not going to tax you. Instead, he’s going to tax your
property and land.
You would easily see the political chicanery. Land
and property cannot and do not pay taxes. Again, only people pay taxes.
The same principle applies to corporations.
There’s another side to taxes that goes completely
unappreciated. According to a 2013 study by the Virginia-based Mercatus
Center, Americans spend up to $378 billion annually in tax-related
accounting costs, and in 2011, Americans spent more than 6 billion hours
complying with the tax code.
Those hours are equivalent to the annual hours of a workforce of 3.4 million, or the number of people employed by four of the largest U.S. companies—Wal-Mart, IBM, McDonald’s, and Target—combined.
Along with tax cuts, tax simplification should be on the agenda.
This article was originally published at The Daily Signal.
The Facts About Who Pays the Most in Taxes in America | Intellectual Takeout