Now that the über-wealthy former chief of Bain Capital, Mitt Romney has decided run for president, the tax rates of Americans are now a news-worthy phenomena. Who pays what, and whether it’s “fair” is quickly becoming a political talking point. What bothers me is politicians and advocates for higher taxes and tax rates use deceptive language when this topic is on the table. Let me briefly clear some things up.
The current tax rates for the average American family earns their living with an earned income, or salary. This tax liability is assessed on a scale depending on your yearly income:
- 10%on taxable income from $0 to $17,400, plus
- 15%on taxable income over $17,400 to $70,700, plus
- 25%on taxable income over $70,700 to $142,700, plus
- 28%on taxable income over $142,700 to $217,450, plus
- 33%on taxable income over $217,450 to $388,350, plus
- 35% on taxable income over $388,350.
The “Bush” tax cuts are set to expire in 2013 creating these changes:
- The 10% bracket will be moved up to the 15% bracket
- The 15% bracket will remain
- The 25% bracket will increase to 28%
- The 28% bracket will increase to 31%
- The 33% bracket will increase to 36%
- And the 35% bracket will increase to 39.6%
Here’s where the verbal hijinks come in. Percentages are different from percentage points, a distinction the majority of people overlook. When the 10% bracket increases to 15%, the jump is 5 percentage points, but the result is an increase of 50% more in taxes paid. The increase from 25% to 28% is 3 percentage points, but the taxpayers in that bracket will be paying an additional 10.8% in taxes. 28% to 31% is an additional 9.7%. From 33% to 36% is a 8.4% increase. And finally, 35% to 39.6% a 11.7% leap. This same principle applies to President Obama’s proposed capital gains increase to 23.8%, up from 15% it is now. That’s a 37% tax hike!
It might not sound like much when speaking in percentages, but an extra $10 or $12 per $100 paid in taxes really adds up. And an extra $37 per $100 is down right robbery.
Now for the next bit of confusion. In 2009 (latest available), according to the IRS [Table 1.1], those with income of $200,000 and up, carried 50% of the tax burden(17) but are only 3% of all tax filers(3). This fact exposes the ignorance of the person who believes the rich should pay their fair share, or at least pay more. How much more should they pay? When I hear this point made: that those who make $200,000 and more pay 50% of all federal income taxes, the response is often something like this: “no, they only pay 15%! [referring to someone who uses the capital gains rates]”. There seems to be confusion between the individual’s tax bracket, and the overall burden those in that bracket shoulder as a percentage of all of the revenue to the government through taxes.
What they seem to be looking for is a higher individual tax rate, because a persistent complaint is that the middle class pay more taxes than the wealthy. However, this is only true regarding the rate. Mitt Romney paid more in taxes last year than I will earn in my entire lifetime. Sure, the rate is lower because he makes his money through investments, but he pays more in taxes than I ever will. But higher rates will not solve the problem (See: All You Can Eat Buffett) and would only be punitive. Even if the U.S. Government was to confiscate 100% of Americans who earn $250,000 and over; and 100% of the their assets leaving them bankrupt; and 100% of the 500 top earning evil corporation’s income, there still wouldn’t be enough money to pay for the government’s spending.
Sifting Reality 
Two issues here:
“And finally, 35% to 39.6% a 11.7% leap … It might not sound like much when speaking in percentages, but an extra $10 or $12 per $100 paid in taxes really adds up.”
Ok three issues. First, it’s an 18.4% increase. (the increase is (39.6-35)/35, not /39.6). But calculation errors aside, your analysis is more problematic.
If your tax rate increases from 35% to 39.6%, then that is an 18.4% increase purely by the calculation, but you’re still only paying $4.60 more per hundred, not $18.40 more per hundred. But that’s only assuming that the increase applies to your entire tax base, which it doesn’t (which is issue 2). The tables you provided show that, for example, from $17k to $70k in income, you’re taxed at 15% with or without the tax cuts. So that’s 0% change for that portion.
However, accounting for all your changes for a super-rich $1M earner (not net worth, just annual earnings), you’ll find a 12% increase in total taxes owed ($357k vs $319k), or 3.9% of that $1M earned.
Most of us ($142k earners and below) will see between $870 and $2160 (10.9% or 2.1% of $142k earned) in additional taxes. The less you earn, the smaller percentage increase (because the unchanged 15% bracket has the most impact). Generally less than $2 per $100 earned in additional taxes paid.
So the middle class is giving up an additional 1.5%-2.5% of their earnings and the super rich are looking at 3.5%-4.5% (even up to a $100M annual salary). So the real impact of repealing the Bush tax cuts TO THE INDIVIDUAL between the super poor and super rich is about $2 for every $100 earned. Somehow, I don’t feel much sympathy.
There are other considerations, but I think these few are enough to justify trashing this post and starting over.
ps. That the rich pay a greater share of the total tax base is irrelevant. What matters is the impact on the individual, not how things work out for the state in the end. That’s just sour grapes.
pps. the idea that someone that investors, the richest of us, should pay only 15% on capital gains is the worst tragedy here. Invest and pay no taxes. Work for your main and pay a higher rate. That’s what’s truly ludicrous. Investment and labor income should be treated equally.
I’ll go over your numbers later on tonight, but I see a couple things I disagree with.
But overall revenue to the state is what’s important. To insist that rates need to be closer to each other implies you view taxes as penalties, and the wealthy aren’t being penalized hard enough.
I don’t think its sad that capital gains is that low, it should be lower. Retirement accounts, savings accounts, and other accounts that middle class people have and rely on are taxed as capital gains.
Jason
Let me put it this way. It is possible that I am wrong on some of the values i.e., 11% as opposed to my calculated 13% (if I’m off, then it’s because of my own sloppy math and there’s no excuse). I haven’t gone back to double check since the thrust of my point is that politicians and those who think the wealthy ought to be punished through the tax system misrepresent tax increases. They attempt to convince the populace that a tax hike which goes from say, 30% to 33% is a 3% increase. They know the majority of people will simply nod along not realizing the increase should be compared to the base rate (30%) and not on the whole (100%) — a 3 percentage point increase is really a 10% realized increase . This is dishonest word play.
Second, I took for granted that people would know that the rates change in relation to the bracket — that each rate applies progressively upwards. So it’s not that a salary of $1M is taxed in total at the 39.5% rate, but taxed in the incrimental rates. But this didn’t really effect the point that percents and percentage points are different, and at each stage the tax increase is more than implied when the %’s and % points are equivocated.
Lastly, the whole drive for taxing the citizens of a country is not to level the field or to tighten income and wealth gaps. This is socialism/communism at it’s worst. As Walter Williams pointed out that if 100% of the wealth, income, and assets were confiscated from those who earn more that $250K, it still wouldn’t be enough. If we want to talk about fairness and equity, then the 47% of Americans who get a federal income tax free lunch ought to start kicking in.
Edit: 13.1%, not 18.4%. I managed to divide by 25 instead of 35.
These accounts are not capital gains. A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price.
I think the point Jason is trying to make is that all income should be treated as income and taxed equally.
No, retirement investments and many other accounts are taxed at the low rates. They are not considered earned income.
the whole drive for taxing the citizens of a country is not to level the field or to tighten income and wealth gaps.
For at least me, the point is not “leveling the field,” (which is not communism), but in everyone paying their reasonable share. Those who benefit the most from the system can and should reasonably pay more, and not just more based on cash, but a percentage more. They benefit from the educated work force, from the infrastructure, from the fire dept, etc, etc, they can reasonably pay a bit more as a percentage of their income. This seems reasonable to me, and I suspect, most people.
I certainly think it fair and rational that I, as middle class guy, should pay more than a low income person. I guess it comes down to what we think of as fair. You all appear to think a flat tax is fair because everyone is paying at the same rate, but many of us (most of us, I suspect) disagree with you, and it has not as much to do with leveling the playing field as it does with just simple justice/fairness.
From those who have received much, much will be expected…
Dan
The top 25% already carry 87% of the burden. At what point to you admit you’re being punitive? At what point do you admit the problem is over spending and not under taxing?
And when you say everyone, do you mean everyone? Because I’m sure you know that half of everyone pays no federal income tax. When do those everyones pitch in?
Tell me Dan, If someone makes $1M a year, how much of their own money that they earned should they be allowed to keep? Or put another way, how much of their money are others entitled to?
When do those everyones pitch in?
The poor already pay disproportionately more in taxes, thanks to sales taxes on items they buy and state and other taxes. “Those everyones” are often paying comparable or more as a percentage of income than you and I are (assuming we’re both middle class-ish).
source
why do liberals always equivocate on this issue? Dan, we are talking about federal income taxes. Everyone pays the other taxes. So far you aren’t suggesting that the wealthy pay more in sales taxes just because they can afford it…yet. But you and other suggest the wealthy arent paying their share (referring to fed income tax) then when someone suggests everyone pay, you break off from the issue and begin on other taxes. So the wealthy are paying all those taxes and the fed income tax.
So my question again is, if you think everyone should pay their share, when will you advocate that everyone start paying at least some? Or does your demand for everyone paying only apply to some everyones?
If someone makes $1M a year, how much of their own money that they earned should they be allowed to keep? Or put another way, how much of their money are others entitled to?
Well, the People have decided maybe they should be taxed somewhere around 35-39% and that sounds reasonable to me. We each need to pay our fair share, right? If I were making $1 million a year, I could “eke by” on $600,000 after tax money.
“Others” aren’t entitled to it. They/WE have an obligation to pay OUR FAIR SHARE and not be freeloaders off the backs others. Are you advocating wealthy welfare, where they pay less than everyone else? Where do you think the “right” tax percentage is?
Would you agree with me that we have no “right” number engraved in stone from God to us so we know the “right” number?
Is it the case that you think people (rich or otherwise) should be able to say, “You know, I don’t want to help pay for roads, police depts, teachers, fire protection, garbage pickup, bridge inspectors, etc, etc, etc, etc, so I won’t. Thanks…”? Who do you think ought to decide what the tax rate ought to be, or do you think we should do away with taxes and make it every person for themselves?
Well, its nice to see that you recognize that the 47% of Americans who aren’t paying any income tax are in fact free loaders and should be paying their fair share. Personally, I think nearly 40% is grotesque and the highest rate ought to be somewhere around 22-26%. I also would support ending all income tax in lieu of a sales tax.
The poor HAVE NO MORE MONEY to pay more taxes. Do you think you can get blood out of a turnip? No, of course they shouldn’t pay what they can’t pay, that would be ridiculous. They pay enough in taxes as it is – probably more than you do, as a percentage of your income.
There is no equivocation there: My first comment was that the poor paid PLENTY, the implication was that they don’t need them to pay more, I’m sorry if that wasn’t clear. I thought it pretty obvious.
So, you’re okay with a regressive tax system, where the poor actually pay more in total taxes as a percentage of their income?
And no, of course they aren’t free loaders, THEY PAY TAXES. Did you read the article I linked for you?
If we cap the tax rate at 26%, whose gonna pay for your obscenely large military? Where is all the money going to come for all your pet projects, along with what we, the People, think are reasonable projects/investments?
How about this: Why don’t you give up driving (to prove that you aren’t beholden to the free roads you get paid for by the public) and quit crossing bridges (ditto) and start demanding a military that is 1/8 the size it is now and when you’ve done that, you could reasonably come back and say, “Yes, I’m prepared to cut all these programs so that I and wealthy folk in general can pay less in taxes…” Until such time as that, you sound as if you want to just be a freeloader, suckling off the gov’t teat.
I know a lot of poor people. The overwhelming amount of them smoke cigarettes at $7 per pack per day. I know a lot of them who play the daily lotteries and scratch tickets. The poor do have money, its just spent on wants and not needs. They collect ebt monies, food stamps, section 8, their true income is a lot more than reported because welfare benefits aren’t included when reporting their income.
We don’t decide on a tax system based on how much more you can get from someone. It should be based on the fiscal need of the government.
For the same reasons you shouldn’t give homeless people cash in hand, you shouldn’t give unending welfare to the poor. Its never wholly spent on needs.
Everyone should pay taxes.
“…free roads you get paid for by the public…”
I’m confused. IF the roads are paid for by the public, and I’m a member of the public, then they aren’t free. Are they?
Personally I love the fact that roads get tossed out in these discussions since they are supposed to be paid for from gas taxes, not income or sales taxes. So those who drive a lot (or who drive less efficient vehicles) are actually subsidizing those who drive less (or use more fuel efficient vehicles). Which makes those who ride bikes freeloaders where roads are concerned.
John,
Of course you’re correct, everyone should pay some income tax.
The roads, bridges, etc, are only PARTIALLY paid for out of gas taxes. A good deal of the money for roads/infrastructure (especially local/state roads) comes out of general operating funds that poor folk (including poor folk and others who don’t have cars) pay in to. So, in a very real way, poor folk are subsidizing your driving welfare.
I agree to this much: We shouldn’t have unending welfare to motorists. They should pay their own way, all of it.
Does the regressive nature of the tax system (the total tax system) not concern you? Setting aside cute little anecdotes (of course the poor are often poor because they make bad choices), How much do you think the poor should pay out totally in taxes? 50%? 75? When is it enough?
Some helpful facts…
Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers.
Are you saying you want the seriously disabled and elderly to pay more taxes? How about your grandmother? Your disabled cousin?
Do you know how ghoulish and trite you sound?
When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average.
That is, they pay 16% of the, say, $10,000 they earn on taxes. Go, learn to live on $8,000/year and come back and demand these poor, disabled, elderly people increase the percentage of their income. You are out of step with reality and mainstream thinking on this point, John, and when you come from a position probably of relative wealth (compared to the bottom fifth), well, it just makes it impossible to take you seriously.
source for actual information, as opposed to anecdotes
Dan routinely misrepresents mine and other’s opinions here on my blog.
First correction: As Craig pointed out, NO ONE is claiming that the poor pay NO TAXES IN ANY FORM. Instead we claim the poor PAY NO FEDERAL INCOME TAXES. Is this clear, Dan? This is a discussion about federal income taxes, NOT state income tax, NOT sales tax, NOT Social Security contributions. So when discussing this issue please do not equivocate taxes.
Second correction: Myself and others such as Glenn have clarified in the past, when we criticize the poor, we are referencing THE ABLE-BODIED poor. Those poor individuals who ARE NOT disabled and can work if they weren’t so comfortable being on the public dole. Furthermore, we do not mean the elderly who may be unable to work because of their age or physical condition.
Third correction: I have not seen anyone here on my blog suggest that the elderly and invalids should not be taken care of, and should be relieved of their civic duty to be employed as productive membbers of society. If they are physically incapable or mentally incapable, it would be wrong to ask them to do something they can’t do.
So Dan, please stop using the elderly and invalid (exceptions, not the rules) as pawns in this game you play. We are talking about able-bodied poor and that they are morally obliged to get themselves in a position to be able to pay taxes. You persistantly try to make it seem as though I and others are trying to get blood from elderly and disabled turnips. This is a dishonest farce. Now please either participate in the discussion that is actually going on, or refrain from comment.
“…So, in a very real way, poor folk are subsidizing your driving welfare.”
So, are you suggesting that the poor get no benefit from roads?
Are you suggesting that the only people who benefit from roads are motorists?
Would you agree that the entire cost of “public” transit should be paid by those who use it?
“Does the regressive nature of the tax system (the total tax system) not concern you?”
Nope. I live in a state where there is no sales tax of food and clothes. So at that point the amount of tax paid by the poor is almost completely related to choices they make. Of course if a poor person buys a $2000 TV, they are going to pay a big chunk of tax. But that’s a choice they make. Is the system really regressive if we are all taxed based on what we choose to consume? Why do you not trust people to make choices that will control these types of taxes. Does it concern you that most of the “regressive” taxes are state and local, while the primary focus of most of the recent controversy (as well as this post) is on federal income tax?
“of course the poor are often poor because they make bad choices” duh. so is the solution to support those bad decisions? Should the rest of us subsidize the poor who make bad decisions? Why would you attempt to dictate the terms of the discussion by unilaterally declaring a significant argument against your position off limits?
“How much do you think the poor should pay out totally in taxes? 50%? 75? When is it enough?”
First, I must point out that NO ONE has suggested that the poor pay 50 or 75% of their income in taxes. Why you would insinuate that anyone has is curious.
Second, I don’t want ANYONE to be forced to pay 50-75% of their income in taxes.
Third, I’ve asked before with no answer that I’ve ever seen, so I’ll ask again. In your opinion what is a “fair” tax rate? How much of someone else’s income do you feel that the government is entitled to?
“Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers.”
Perhaps you’d care to provide some substantiation for this “fact”.
“Are you saying you want the seriously disabled and elderly to pay more taxes?”
If any one is earning income then I don’t have a problem (in a general sense) with them paying SOME income tax.
“When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average.”
As an unsubstantiated statement of your opinion there possible rations way to respond to this. I did find some information to suggest that the federal tax rate paid by the lowest quintile of income earners is -0.1%. I guess I object to anyone having a negative tax rate.
“Many Americans with lower incomes do pay various excise taxes, as well as payroll taxes toward Social Security and Medicare. But that fact doesn’t change the overall pattern. When all federal taxes are included, the top 1 percent paid 22.3 percent of taxes in 2009, compared to the bottom 20 percent, who paid only 0.3 percent of the taxes. That means that the proportion of taxes paid by the top 1 percent is 74 times the amount paid by bottom 20 percent. In 1979, the top 1 percent was only paying seven times as much in taxes as a share of all taxes collected.”
“Many believe the Reagan and Bush tax cuts overwhelmingly benefited the wealthy. However, data from the non-partisan Congressional Budget Office (CBO) shows that poor and middle income Americans have benefited more than the wealthy.
In 1979, the poorest 20% of earners paid no income tax. By 2007, that same group had a negative income tax rate of 6.8%. In other words, they took home 6.8% more than they paid in to the federal government. Middle income Americans paid an effective income tax rate (the amount paid after deductions) of 7.5% in 1979. That rate was cut to 3.3% in 2007, a drop of more than 50%.
What about those dastardly one percenters? Back in the days of Jimmy Carter, Americans in the top one percent of earners paid an effective tax rate of 21.8%. The effective tax rate fell all the way to … wait for it … 19%.
Even when taking into account all federal taxes, the poor and middle class have benefited more than their wealthy counterparts. In 1979, the total effective federal tax rate (including payroll taxes, excise, capital gains, estate, and corporate taxes) was 8% for the poorest Americans and 18.6% for middle income earners. Thanks to the Reagan and Bush tax cuts, those rates fell 50% and 23%, respectively. The top one percent of earners had their total effective tax rate fall 21% over the same time period.”
I know this is a lot, and i’ll wait patiently for you to digest and respond.
Dan,
I missed your link the first time and I don’t have time to dig through the whole thing, I’m not sure that your link actually provides documentation, but I will stipulate that you have provided a source for your earlier comments.
I also note that your link supports my contention that there are folks with a negative income tax rate.
further it seems slightly dishonest to include payroll taxes as these are an advance payment for a future “benefit”. It seems entirely reasonable to suggest that these folks will receive at least as much in SS benefits as they pay in and that they will access medical services worth more than what they pay in medicare taxes.
It seems the problem is once again one of definition.
The focus of the current debate is the federal income tax. You own article supports the fact that the poor pay either miniscule amounts of federal income tax or actually have a negative income tax rate.
As I pointed out payroll taxes are an entirely different animal and probably should not be treated in the same way as income taxes.
It seems as though the “regressive” part of the tax system is either state and/or local (which is an entirely different discussion) or based on consumption (which to some degree can be controlled).
Maybe it would be helpful not to lump these various types of taxes together, but to deal with each individually.
John,
I did notice while perusing the link Dan provided. According to them the reason why the number of folks who pay zero 9or less) income tax is so high is due to the temporary bubble of the unemployed. That’s right the folks who the labor dept doesn’t count anymore to keep the percentage artificially low. The ones the stimulus was supposed yo help. Yep, it’s their faul.
Dan also brings up one of his favorite lines regarding the expectations on those to whom much was given. He has admitted to me that he is capable of acquiring a better paying job, or that he can make more than he now does if he wants to. This means that he was given much in the way of ability to earn more, thus being less of a burden on his fellow man should catastrophe befall him as well as being able to do more for more people with whatever money he believes is in excess of his personal needs. But no, he is not concerned with how much he was given and is only concerned with the appearance of shunning wealth, as he believes it makes him holier. At the same time, he will insist that the wealthy, who have earned much as opposed to have been given it, should constantly give more than they already are. Worse, the passage with this concept of expectations regards people who have been given the knowledge and understanding of God’s will, and he fails in meeting those expectations as well.
Dan’s thought processes are mind boggling….earn more, pay more….well those who earn more, do pay more already. This entire Buffett Rule is punitive. It’s focus is On anyone who does well needs to do their fair share – so that others have the opportunity to get ahead. It is not the responsibility of those who make more to provide others the opportunity to get ahead. Getting ahead is accomplished through self motivation, accountability, risk taking, and all of those things that make a winner a winner. If one wants to get ahead, they must make the sacrifices that those who ARE AHEAD have made. We can not survive nor thrive if this socialist agenda continues. The spewing of the term “fair” gets thrown out so much that it makes me vomit a bit in my mouth. Nothing is fair…things are what you make them…work hard, earn big. Liberal (socialist agenda) hypocrits cry “that’s not fair” (exact words even found at whithouse.gov under Issues-The Buffet Rule- Paragraph 1) yet their idea of fair is that the successful carry the unsuccessful. That is double talk….that is ridiculous. “if Mitt would just release the tax returns, it will show he has nothing to hide”….isn’t that what we spent years requesting Barrack do with his documentation….only to be coined Birthers”. They make my head spin.