Do the rich pay their fair share?
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The top 1 percent earn $500,000 or more — a great income. Most people only get to that level after many years of hard work, and quite possibly the accumulation of serious debt to fund their education and build their business.
Of course, there are people who make more than $500,000 — some who make many millions, and some who make billions. But the number who do is very small.
So what is fair? Fair would seem to be that the group of taxpayers who earn 10 percent of the country’s income would pay 10 percent of the country’s taxes. The group who earned 20 percent of the country’s income would pay 20 percent of the country’s taxes, and so on.
But what if I told you that, according to IRS data, the top 10 percent of all earners — the people making $150,000 and above — pay 71 percent of all federal income tax while earning only 43 percent of all income? If anything, the top 10 percent pay more than their fair share. So, as it happens, do the much reviled top 1 percent. They earn 17 percent of all income, but pay 37 percent of all federal income taxes.
What about those at the opposite end of the income scale, the lower earners? Are we squeezing them? Hardly. Those who make $45,000 or less — 47 percent of all earners — pay little and often no income taxes.
Ah, but what about payroll taxes, the money we pay to fund social security and Medicare? That takes a bigger bite of the paycheck of lower earners than higher earners. Isn’t that unfair?
Consider two points: It is misleading to call the payroll tax a “tax.” It’s really an insurance payment that guarantees we receive social security and Medicare after we turn 65. Second, the benefits we receive from social security is capped, no matter how much we have paid in. This means that the payroll taxes of higher earners actually subsidize the social security and Medicare benefits that lower earners receive at retirement.
How do all these numbers stack up against other countries? The US income tax system is substantially more progressive — meaning that income tax rates rise as income rises — than other advanced countries, including Germany and Sweden. So if you think our tax system is unfair because it coddles high earners, then you must conclude the tax systems in these other countries is more unfair.
So how high are tax rates on Americans today? Well, throw in federal tax increases mandated in 2013 and state taxes, and top earners face a tax rate of 50% in California and New York. Other states like Maryland and Connecticut are not far behind. Do you think a tax rate of greater than 50% is fair? If so, is there any rate that wouldn’t be?
Nobody’s calling for bake sales to help anyone in the top 10 percent of earners, and no one wants to minimize the struggles of those at the lower income strata, but to say the rich — however you might define them — do not pay their fair share is simply wrong.
Finally, numerous academic studies show that when tax rates are too high, investment, risk-
taking by entrepreneurs and therefore job creation, all decline. And when that happens, it’s the poor who suffer. Not the rich. The rich do fine. It may feel good to take money from the top 10 percent but it doesn’t do good, and it sure isn’t fair.