I was rummaging through the local county paper yesterday, sent to me free as a subscription enticement, when I came across a guest editorial arguing that the “wealthy deserve to keep more than a hunk of their profits.” This, of course, goes against the grain for the Obama folks and the occupy movement, who feel that the 1.1 percent, as they put it, isn’t paying its fair share in taxes.
The columnist argued that the IRS’ own figures show that the top 10 percent actually paid $721 billion of the more than $1 trillion the government collected in federal income taxes in 2008. In short, the rich really do pay taxes, or about two dollars out of every three collected. More than $392 billion of this came from the top 1 percent. In fact, just 0.2 percent of the population pays 21 percent of the taxes. As for the rest of us, some 47 percent pay no tax, while collecting many social benefits.
Do the poor pay taxes?
Is there any truth to the writer’s claim? If you’re talking about federal taxes, the answer is, yes. But this doesn’t get to the bottom line. Virtually everybody pays taxes. For example, there’s the payroll tax of 6.1 percent on the initial $106, 800 of wages (temporally reduced) for Social Security and 1.45 percent on all wages for Medicare. Then there are state and local taxes, e. g., sales, income, property, gasoline, utilities, etc. Everybody, including the poor, the disabled, and the retired pays taxes. According to the Tax Foundation, the 2008 earnings average for the bottom 50 percent, was just $15,300. In short, these wage earners didn’t earn enough to pay federal taxes, though they paid other taxes at the same tax rates. Broken down proportionally, the poor pay more per capita than the rich, with the one exception of Vermont. At this point, I’d urge everybody to read Barbara Ehrenreich’s monumental expose, Nickel and Dimed: On (not) Getting By in America.
Do the rich pay their fair share?
Initially it would appear they do. One percent of the top wage earners paid 38% of the total income tax in 2008, the last year figures were available (published at the IRS online site). Left out is the fact that federal tax revenues aren’t solely collected from income taxes. Payroll taxes for Social Security, Medicare, and even unemployment insurance, are paid by the bottom 90 percent of taxpayers. This is because the payroll tax for Social Security is restricted to a maximum $106,800, after which there’s no tax. Bill Gates and Steve Forbes pay the same amount as you and I. Although they’re subject to paying a means tax on their social security income when they retire, so are you and I. Don’t even get me started!
Is there a growing tax gap between the top 10 percent and the bottom 90 percent?
Yes! When Reagan took office in 1980, the marginal tax rate (the tax rate paid on the top earned income) stood at 70%. By 1987, he reduced it to 50 percent Under George Bush, the rate was reduced to 35 percent. Since 1980, the average income of the bottom 90%, adjusted for inflation, has increased to $303, or 1 percent. In the meantime, the 1 percent did a considerably better, doubling their income to $1.1 million.
And how goes it for the corporate sector?
According to IRS figures, 2008, corporate profits rose 12 percent since 2000, even though corporate taxes show an 8 percent decline. This discrepancy is occurring because of increasing loopholes or transferring of profits to offshore hideaways such as the Cayman Islands. Currently, corporations have stashed an estimated 2 trillion in cash holdings, unwilling to reinvest in a volatile economy. I’m not saying this is wrong in itself. The spending of the average American family is down as well and for the same reasons. Spending is the key catalyst to market regeneration.
The point is, many of the banks were bailed out in 2008 to a tune of nearly a trillion. They seem to have a short memory, and it hasn’t decreased either their zeal to close on beleaguered mortgages or award themselves bonuses in the millions while enjoying unparalleled tax breaks. At the moment, bonus outlays exceed pre-recession levels, this in a down economy that has produced incalculable suffering for many Americans unable to afford their homes, buy health care, or find meaningful work. JP Morgan’s CEO Jamie Dimon recently took home a $19 million dollar bonus, enough to keep food on the table. While not all CEOs receive this kind of payout, the vast majority of CEOs continue to enjoy perks with the consent of their shareholders. Forbes reports that investors at only 36 companies out of 2250 voted against pay increases for their CEOs. Meanwhile, new data shows that nearly 25% of us now lives in poverty.
Have the occupiers got it wrong? Not by a long shot!