Do you pay your fair share in taxes?
Even as President Barack Obama pitches the "Buffett rule" to ensure that millionaires pay at least a 30% tax rate, some commentators are decrying the fact that about half of U.S. taxpayers don't pay any federal income tax.
But our tax system is more complex than any sound bite or simplistic headline can illustrate.
Some multimillionaires do pay a lower effective income-tax rate than some middle-income taxpayers; receiving a chunk of your income via long-term capital gains rather than a paycheck is just one reason that happens. But the top 20% of income earners paid 70% of federal taxes in 2007, according to the most recent data available from the Congressional Budget Office.
Yet wealthy people bear a bigger share of corporate income taxes, which are ultimately borne by individuals. "All taxes have to be paid by somebody at some point," says Steve Wamhoff, legislative director at Citizens for Tax Justice, the liberal lobbying arm of the Institute on Taxation and Economic Policy, a research group. "The corporate tax is paid by the owners of corporate stock and business assets."
Sales taxes can have an outsize effect on lower-income people. "After they buy basic necessities, they typically won't have a lot of money left over to save or invest," says Mr. Wamhoff. A wealthier family is "more likely to have a portion of their income that they can put to savings or investments that will never be subject to sales taxes."
What about those 46% who don't pay federal income tax?
Wealthier people face a tax rate as high as 35% on earnings, "but they get the biggest tax breaks," he says. "They start off with such a high tax that the biggest tax breaks don't bring them down to zero. They're benefiting hugely from tax breaks—much more than the poor people—but because they start off at the high level, their tax bills stay positive."
That said, 1,470 millionaires were among those who paid no federal income tax in 2009.
3 comments:
I remember reading an article a few months ago that talked about all of the government benefits that have been paid to millionaires. Each year, about $30 billion goes to millionaires in the form of tax giveaways and federal grant programs. Essentially, the government is subsidizing the lifestyles of the rich.
It is worth noting in this discussion that tax breaks to the wealthy are frequently due to attempted social engineering by the federal government. When you look through the code, everyone seems to think that some breaks are completely fair, and others are unnecessary and should not be allowed. However, any two people looking at the same code will differ in their morals and feel differently about the same code section.
Emma's right, but from a strictly economic viewpoint, it's argued that taxing the rich and possibly giving breaks to the poor would maintain aggregate demand.
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