Who really benefits from the current tax code? The top 1% of taxpayers end up paying almost as much in federal income tax (and some years even more) as the bottom 95% combined. Almost 50 percent of all U.S. households (69 million) are projected to have owed no federal income taxes for 2010. The vast majority of these folks are considered "low income." There are also a handful of millionaire that owed virtually nothing in taxes because of their big investment losses from the 2008 financial crisis. These same millionaires tend to be retired or self-employed. High-income households may also reduce their federal tax liability by making huge charitable donations.
During times of economic trouble, some say the rich should pay more tax. But there simply are not enough rich people to foot the bill even with a tax increase.
So why are the rich such popular targets? Well, BP (LINK) could not fix the catastrophic gusher it called a “leak,” Martha Stewart couldn't quite understand the insider trading laws, Enron executives didn't understand the concept of "fiduciary duty" and Barry Bonds (LINK) apparently struggles with examinations under oath. Since President Obama is struggling to fix the economy, the growing answer seems to be "why not?" The simple answer is that a few bad apples does not necessarily spoil the entire bunch. If the top 1% pay 95% of the taxes, is it really fair that the rest of us ask them to pull more of the weight? Furthermore, what if they finally say no thank you?
Update 5-11-11: We can explain our tax system by analogizing to 10 men going out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.
Let's further suppose that the ten men eat dinner in the restaurant every day and seemed quite happy with the arrangement. One day, when the owner says,"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."
So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes. So, the first four men were unaffected. They would still eat for free. But what about the other six? How could they divvy up the $20 windfall so that everyone would get his 'fair share'? $20 divided by six is $3.33. But if they subtracted that from every body's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.
So, the restaurant owner suggested to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to eat for free. But the sixth man said, "I only got a dollar out of the $20 and the tenth man got $10!"
"Yeah, that's right. And I only saved a dollar, too. It's unfair that he got ten times more than me!" exclaimed the fifth man.
"Right, why should the tenth man get $10 back when I got only $2? The wealthy get all the breaks!" shouted the seventh man.
"We didn't get anything at all. The system exploits the poor!" said the first four men. The nine men surrounded the tenth and beat him up. So the next night the tenth man didn't show up for dinner. When it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
Under our tax system, people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much and they just may not show up at the table anymore. (There are lots of good restaurants in over seas.)
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16 comments:
I did not know the rich paid so much.
Poor picked on rich guys...
What you are talking about here is % of income. Warren Buffet was shocked that his secretary paid a higher % of her income than he did. Even though Warren paid more tax dollars, it is because his income is tremendously higher than his secretary.
Another complaint are the corporate tax breaks that have been sold to us for years as a way to save employment. As we have seen, what has really happened is those corporate savings have given these corporations the extra cash to pick up and move to another country, taking the promised jobs with them, thus enhancing the income of the select few at the top of the corporation, through higher salaries and benefits.
The suburb I grew up in had a large corporate manufacturing plant right there in town, and they paid property tax just like everyone else. The results were that we had great schools, teachers, parks…ect. Now days these corporations pay zero property tax to the communities in which they reside, and some even get rebates. The results are that there is now much less money for education and the main reason the public school system is floundering. So what do the corporate political puppets do, they blame the teachers and their pensions.
During the 60’, in this same suburb, my father raised a family of seven on one income from the manufacturing plant he worked at. We had a large backyard with a swimming pool, two cars in the drive, and many other amenities. The CEO of this corporate manufacturing plant was definitely rich, a multimillionaire. Now days the corporate CEO is not happy with $5-10 million a year, they expect $100 million and will go to any means to get it.
The tax and trade policies of the past 30 years ARE a re-distribution of wealth…it is, and has been a trickle up policy.
By definition, a senior manager, CEO or owner of a major for-profit corporation is someone who is trying to make as much money and gain as much power as possible. Undoubtedly they too often attempt to accomplish their goals by any means available, regardless of who suffers.
Such drive puts them in a potentially dangerous place as it may involve violating business or social ethics. It may even lead to committing crime.
"I would never consider running for President because I would have to give up so much power."
~Lex Luthar
The post just keeps getting better throughout the week. I think it is great how the story continues to evolve.
Under our tax system, people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much and they just may not show up at the table anymore.
Legal,
And to them people I say go ahead and leave, go live in China, there are many qualified people/companies waiting to take their place. This style of capitalism we have now is not based on competitive challenge, it is based on growth, elimination of competition, and monopolies.
If you remember the movie “The Tucker” based on a true story, Tucker developed a superior car to the big three auto makers, one that included seatbelts long before they were insisted upon as a safety device. The big three did everything possible to eliminate him as competition since they were interested in profits to upper management and not quality of product and development. This business strategy was continued until the Japanese snuck up on them and replaced their continued crappy autos with a superior product.
In the 60’s Chrysler had some of the best cars on the road and superior engines. By the 70’s they produced junk because upper management knew a 3 cent plastic screw over a 10 cent steel one would increase their bonuses, along with their tax breaks for keeping many people employed. When they failed in the 80’s I did not think they should have been bailed out because of upper managements poor decisions…let the better company take the lead. The company that delivers quality and products that the public trust.
BTW, you comparison of the people eating dinner is much distorted. A better comparison must include income.
The lower payers of the meal would be the homeless out in the ally fighting for the scraps of that meal consumed in the restaurant chain that replaced their mom and pop restaurant.
The middle payers would be the cooks, waitresses, and mangers of the restaurant chain…expected to pay for their share of what quality meal they ordered.
The highest payer would be the owner of the chain that will deduct his meal as a business meeting and end up only paying for the tip. The tip will be pocketed by the waiter who will fudge the numbers on the bill and pass most of the cost of the owners expensive lobster dinner to the others whose meal was pork & beans.
Video Guy: I got to disagree. When I go out on the town, I always get stuck with the bill. And my accountant doesn't deduct any of it as business. I pay lots of taxes and don't mind because I make lots.
But, just because others aren't as rich as me doesn't mean they are entitled to take advantage of me when we go to dinner.
Shell
Collecting more taxes than is absolutely necessary is legalized robbery."
-- Calvin Coolidge
"If you get up early, work late, and pay your taxes, you will get ahead -- if you strike oil."
-- J. Paul Getty
"What Mae West said about sex is true about taxes. All tax cuts are good tax cuts; even bad tax cuts are good tax cuts."
-- Grover Norquist
"Abracadabra, thus we learn the more you create, the less you earn. The less you earn, the more you're given, the less you lead, the more you're driven, the more destroyed, the more they feed, the more you pay, the more they need, the more you earn, the less you keep, And now I lay me down to sleep. I pray the Lord my soul to take, if the tax-collector hasn't got it before I wake."
-- Ogden Nash
Worried about an IRS audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag."
-- Jay Leno
Bernard Lawrence "Bernie" Madoff is an American former stock broker, investment advisor, non-executive chairman of the NASDAQ stock market who was the operator of the largest Ponzi scheme in history. Shame on him!
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