Last week, Charley Rangel (D-NY) chairman of the house Ways and Means Committee, said he's going to eliminate the Alternative Minimum Tax by raising taxes on hedge fund managers and private investment groups, eliminating the LIFO accounting method which helps manufacturers who hold inventory, and changing the way manufacturers handle foreign earnings. These are immediate changes to be followed next year by a proposed 4% surcharge on the "rich" (earners of $150K if you're single, $200K for a married couple...oops another marriage penalty!).
Before we examine the cliches, take a look at the following chart:
| | Number of Returns | AGI ($ millions) | Income Taxes Paid ($ millions) | Group's Share of Total AGI | Group's Share of Income Taxes | Income Split Point |
| All Taxpayers | 132,611,637 | $7,507,958 | $934,703 | 100.00% | 100.00% | - |
| Top 1% | 1,326,116 | $1,591,711 | $368,132 | 21.20% | 39.38% | above $364,657 |
| Top 5% | 6,630,582 | $2,683,934 | $557,759 | 35.75% | 59.67% | above $145,283 |
| Top 10% | 13,261,164 | $3,487,010 | $657,085 | 46.44% | 70.30% | above $103,912 |
| Top 25% | 33,152,909 | $5,069,455 | $803,772 | 67.52% | 85.99% | above $62,068 |
| Top 50% | 66,305,819 | $6,544,824 | $906,028 | 87.17% | 96.93% | above $30,881 |
| Bottom 50% | 66,305,818 | 963,134 | 28,675 | 12.83% | 3.07% | below $30,881 |
This data is from the IRS released in October of 2007. Now let's deal with a few cliches:
1. The top 25% pay 86% of the taxes. The 25th percentile makes $62K per year...hardly "rich" by any means. And 86% of all taxes paid seems, by any rational standard, to be more than their "fair share".
2. When taxes are cut, the people who get the benefit are "the rich". (Remember the "giveaway to the rich" cliche?). When looking at the chart, it would appear that the 25% of the people who pay 86% of the taxes are the "rich". Doesn't it seem equitable that the people who pay the taxes, are the ones who benefit when taxes are cut? If politicians truly believe that tax cuts should be given to the people who didn't pay the taxes, let them be honest about things and just say they want to take our hard-earned money and redistribute it. Hmmm, it could be tough for them to get elected on that platform.
3. Now for my favorite cliche of all time! Corporations aren't "paying their fair share", "pulling their weight", or are "getting away with murder". Pay close attention to the next statement. YOU CANNOT TAX A CORPORATION. Huh? What? Think about it. Any company in business to make a profit does so by selling something, e.g. goods, services, ideas, time, whatever. To make a profit, one must sell ones good for more than it costs to produce. Costs include things like labor, raw materials, transportation and....wait for it....taxes! And not only taxes, but all the costs associated with figuring out ways to avoid them. So who is really paying the "tax" on corporations. We are, the people who buy the good or service. So if you want the price of everything to go up, let the politicians tax those nasty old corporations. Just as an aside, a related cliche which really annoys the heck out of me is the old "windfall profits" that the oil companies make. You want to know who makes more money on every gallon of gas than the oil companies? Various federal, state, and local governments, that's who. But when the price of gas goes up, do you hear the politicians offering to cut the taxes on gas?
A couple more little factoids gleaned from the IRS data and I'll bring this tirade to a close.
The top 1% of taxpayers pay a greater dollar amount in taxes to the Federal Government than the bottom 90%. Wow. Who's not paying their fair share?
Finally, and this is the strangest fact of all, when tax rates are lowest, the top 1% of taxpayers pay the most in taxes. In the US when Ronald Reagan lowered the top rate from 70% to 50% the top 1% was paying 19% of all taxes. By 1986 the top 1% was paying 25.7 % of all federal taxes. When Reagan cut the top rate again, the taxes paid by the top 1% continued to rise to 27.5% by 1992. Now, as you can see from the chart, the one-percenters are paying over 39% of all federal taxes.
The UK's situation is similar. In 1979 the top 1% paid 11% of the taxes when the top rate was 83%. The rate was cut to 60% and by 1987 the one-percenters were paying 14% of the taxes. The top rate was cut again to 40% and our good one-percenters are now paying a robust 21% of taxes. (source: Her Majesty's Revenue & Customs).
So when politicians talk about fixing the tax code, hold on to your wallet with both hands.
OK, now I'll take a deep breath and go have a beer.
