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All Da King's Men

Tax Stuff

By David King Published: April 22, 2013

I was perusing the website of the Tax Foundation, and I discovered Tax Freedom Day in 2013 was April 18th. That means Americans worked an average of 108 days out of the year just to pay their taxes. It also means this:

"...Americans will pay more in taxes in 2013 than they will spend on food, clothing, and housing combined.”

More of our money goes to the government than to the necessities of life, yet it STILL isn't enough for the government. We are running huge deficits. If we covered the deficits with additional taxation, Tax Freedom Day would be May 9th. This means the government is spending 36% of Americans' total income. Given this...why are we surprised that it's harder to get by these days ? The more of your money the government (or anyone else) takes, the less YOU have.

It wasn't always this way. In 1900, Americans paid only 5.9% of their income in taxes. Somehow, the nation didn't collapse from such a dearth of government. Quite the opposite occurred.

My liberal friends harken back fondly to the "good old days",  when the top tax rates were 70-90%, like in the 1940-1950's. What my friends don't recognize is that our tax burden was actually much LOWER back in those days. The tax burden in 1940 was 17.9%. In 1950, it was 24.9%. That's substantially less than the 36% of our income the government is spending today.

Then we have President Obama, he of the "fair share" rhetoric. Obama talks about raising income taxes on the rich as if it is some kind of moral imperative, but what Obama doesn't tell you is, the rich pay a much larger share of income taxes than anyone else. This comes from The Economist:

...in recent years, the top 5% of earners have received 32% of the country’s adjusted gross income, but paid 59% of federal individual income taxes.

The federal income tax is steeply progressive. The "rich" pay nearly twice their "fair share". President Obama's talking point is way off base.

As for taxes on the rich being much higher in the past when marginal income tax rates were in the liberal dream range of 70-90%, a dream is largely all that was. People didn't pay 70-90% of their income in taxes. Consider this:

In 1979, when the top marginal tax rate was 70 percent, the total effective tax rate was 22.2 percent, only 1.7 percent higher than 2005, when the highest marginal tax rate was 35 percent -- half the 1979 rate.

Marginal tax rates are quite different than what people actually pay (effective tax rates). There were/are all kinds of tax loopholes, and the rich know how to take advantage of them.

Here's the rub. The federal income tax is far from the only tax the government collects, and while the federal income tax is steeply progressive, most other taxes ARE NOT. The Economist claims federal income taxes represent just 27% of total government revenue. Many other taxes, such as the Social Security payroll tax, sales taxes,  excise taxes, and property taxes, are not progressive. The burden of paying those taxes falls most heavily on those who can afford them the least. The Economist claims that if you add ALL the taxes together, it comes very close to being a flat tax, that people end up paying nearly the same percentages overall. Maybe Steve Forbes was onto something. (Note - I have not verified all the claims made by The Economist. That's why I'm referring to them as "claims". I am merely presenting the information for purposes of discussion. Any corroboratory or contradictory data is welcomed).

The point of all this is, taxes hurt the little guy the most. I would even argue that taxing wealthy people heavily hurts the little guy (both prosperity and pain roll downhill), but that's a subject for another day.

Invariably, people politicize taxes according to the agenda they are promoting. My liberal friends tell me federal taxes are the lowest they've been in, like, forever (with "forever" in this case being about 30-35 years). This is more or less true, but it's a function of high unemployment and a weak economy, not low tax rates.

Let's return to federal incomes taxes, which is the subject of Obama's fair share rhetoric. My liberal friends are very concerned about income inequality. I'm concerned to a lesser degree. My main concern is having a high median income in this country. I don't care who gets rich provided everyone has opportunity. The following two charts illustrate how much the top 1% earn, and how much they pay in taxes. There are several other informative graphs at this link, for those who are interested:

 

the-top-1-make-a-nice-chunk-which-has-grown-significantly-over-the-years

 

and-the-top-1-pay-more-than-30-of-the-income-taxes-a-percentage-that-has-been-steadily-growing-over-time-you-can-see-why-the-top-1-complains-about-having-to-shoulder-too-much-much-of-the-tax-burden

Is this a problem ? My liberal friends think so.

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