Yesterday we talked about and calculated the size and impact of the three main tax issues that Obama is insisting on in any deal to raise the debt limit: eliminate some oil company tax loopholes, eliminate tax breaks for corporate jets, and raise taxes on Americans earning over $250,000 a year. Those calculations showed that even if he got all three of those tax criteria included in the debt limit negotiations, their percentage impact in total would be low single digits relative to 2011's excess government spending and overall government debt. For these measly, paltry impacts and returns, both political parties are willing to default the United States government for the first time ever.
But let's look at income taxes from another perspective. A recent New York Times article by Bruce Bartlett, that was summarized in the July 15, 2011 issue of The Week magazine, lamented that some high earning Americans paid no Federal income taxes last year, "Millionaires who pay no taxes." According to Mr. Bartlett, 78,000 U.S. households with incomes between $211,000 and $533,000 paid no income taxes this past year, 24,000 tax filers with incomes from $533,000 to $2.2 million paid no Federal income taxes, and 3,000 tax filers with incomes over $2.2 million paid no Federal income taxes. He laments the fact that the tax code has so many credits, tax breaks, and loopholes for the wealthy that some high earners can legally get away without paying in Federal income taxes.
Does not seem fair, does it? High earning Americans not paying their "fair share" of taxes. But let's see how much this could actually be if all these special treatments were removed:
- Let's start with the first group of people, the 78,000 housheolds. Let's assume that their 2010 income was the average of the two ranges that Mr. Bartlett provides or $372,000. Let's also assume that they had absolutely no deductions and that the $372,000 is their adjusted taxable income, a figure that is probably high.
Under the current tax code rates, I calculate that each of these tax filers should have paid $107, 657 in Federal income tax if there was no credits, deductions, etc. available to them. Thus, in total they would have paid about $8.4 billion in Federal income taxes. This $8.4 billion is .2% of the Federal government's 2011 likely spending level, hardly enough to balance the outlandish political class spending.
- Let's move on to Mr., Bartlett's second group and do the same calculations and estimation of an average income per tax filer in this group. Their tax bill, if there were no deductions, credits, tax breaks, etc. would be $455,489 per filer or about $11 billion in total. $11 billion comes to .3% of the Federal government's 2011 likely spending level, hardly enough to balance the outlandish political class spending.
- Let's now do Mr. Bartlett's final group, those earning over $2.2 million a year but who paid no income tax. Let's start with an assumption that the average of those earning over $2.2 million was $3 million. Going through the standard tax calculations and assuming that these people also had no special tax treatment, each one of them should have paid $1,027,314 in Federal income taxes. In total, their tax bill would have come out to about $3.1 billion. $3.1 comes out to .08% of the Federal government's 2011 likely spending level, hardly enough to balance the outlandish political class spending.
If you assume that those earning over $2.2 million had an average income level of $4 million, not $3 million, then they would have paid about $4.1 billion or about .1% of the Federal government's 2011 likely spending level, hardly enough to balance the outlandish political class spending. If he average was $5 million, the percentage of 2011 spending would have been .14%, still pretty small.
Should high earners get away without paying taxes? In most cases probably not. They enjoy all the benefits of what the government provides, e.g. national defense, infrastructure, government services, etc., they should pay their fair share. However, the point to take away from Mr.Barlett's numbers is that even if all of these non-payers started paying according to the current tax rates, their total contribution would be about $37 billion or less than 1% of the 2011 likely Federal government spending, hardly enough to balance the budget or offset the out-of-control political class spending.
Now, let's finally get around to the elephants. If you buy the assumption that these high earners should not get away with paying no taxes since they enjoy all of the benefits of government without paying anything for it, what should we do with the other 45% of all American workers who also paid no Federal income taxes in 2010 since they also get a whole slew of tax breaks, credits, etc.? What would happen if they also started paying their "fair share:"
- There are currently 112.6 million households in the country.
- Let's roughly assume that 45% of these households paid no Federal income taxes in 2010 as many independent sources have estimated.
- That means that 50.7 million households paid no Federal income taxes in 2010.
- The average household income in the United States is estimated to be $50,221.
- Under the current IRS tax tables, an average household income should be paying $8,680.50 in Federal income taxes.
If it is not fair for the high earners to get the benefit of government without paying for it, then it is also unfair for you next door neighbor not to pay any taxes to get the same government benefits you get even though you pay Federal income taxes. No one in the political class wants to talk about these three elephants in the room:
- Elephant #1 -Taxing the rich will come nowhere close to making a substantial dent in the out-of-control spending of the political class.
- Elephant # 2 -If politicians are serious about reducing the annual spending deficit of the political class, they should eliminate tax breaks for ALL Americans, even those that are not making millions, since that would generate eleven times more revenue than just closing Mr. Bartlett's high earner tax loopholes.
- Elephant #3 - Even if the political class killed the second elephant and raised taxes for EVERY American who does not currently pay taxes, it would not come close to closing the spending gap of the political class. That is how out-of-control and dangerous their spending is.
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3 comments:
There are a few argumentative flaws here, but I'll stick to the main one.
In essence, what you are saying is that even if millionaires and billionaires, and corporate jet owners were not allowed to continue to get away with not paying their fair share in taxes, and all the corporate welfare that has been handed out to the "job creators" were abolished, it still wouldn't balance the budget or eliminate the debt.
You are correct. So let's do nothing.
Let's not tackle Medicare, Social Security, or the BIGGEST elephant in the room, the absurdly bloated defense budget (the one that spends more than the next 25 countries combined...23 of which are our allies).
Let's not cut out waste, fraud, and abuse within the healthcare system, let's not cut funding for women's reproductive rights, or the National Endowment for the Arts, or farm subsides for corporate agribusiness, or any favorite cause for either Progressives or Conservatives.
Let's simply do nothing.
Or we can start chopping down the debt little by little. But how should we do it? Should be eliminate the debt by going after the most vulnerable in our society (woman, children, impoverished, the elderly)? I know, I know, these people should all "pull themselves up by their bootstraps" and be REAL Americans, but sometimes people struggle a bit.
Or should we take a balanced approach and realize that since the citizen who makes $80k a year must to pay 1/3 of their salary in taxes, that the millionaire should also.
I personally pay a lot in taxes. 1/3 of every paycheck. And does it gall me to know that a HUGE chunk of that money is going to war profiteers like Halliburton, KBR, Lockheed Martin, Blackwater (no Xe) and killer robots (drones) that are slaughtering innocent civilians on a weekly basis, or to cover the cost of tax breaks and loopholes for millionaires and billionaires? Yes, it does.
But I understand that being a citizen of a country involves compromise. And I certainly don't waste my time grousing endlessly about my "freedom" being taken away. Although, I do find it a bit odd that "freedom" never seemed to crop up as an issue while a white man from Texas, of sub-par intelligence, was running up the debt, but now has suddenly come to the forefront once a Black former Harvard law professor is in the White House, spending money to clean up the biggest financial mess since the Great Depression). But I digress.
I also know that there will always be waste in government (which oddly seems to grow larger during Republican administrations), and that some of my tax dollars are going towards programs I support, and some will go to programs I don't support.
It's called compromise.
We all need to take a breath. From heathen Progressives and Conservatives in the big cities, to the (as Sarah Palin puts it) "real people" in small-town Jesus-land.
No one wants to take away your American flag, or you Bible, or your guns...and certainly not your freedom (though the Supreme Court certainly did its best with it's Citizen United ruling, giving corporations the same rights as people to corrupt the election process even more).
Trust me, the last thing I'm worried about when it comes to my "freedom," is that some person who can't afford healthcare is going to get surgery to remove a cancerous tumor in their body, without having to spend the rest of their lives paying off that hospital bill, or going bankrupt, or fighting with an for-profit insurance company bureaucrat, who's job it is to deny coverage (denial of coverage leads to more profits.)
The fact is, we live in a big country, with a big government. Always have, always will. Democrats are certainly no prize, but at least they understand this concept. They understand that in modern history, there has only been one system of government that proven effective over the long term; a blend of Capitalism and Socialism. We have it, Europe has it, and most of the developed world has it. And China will soon have it.
And the party that insists on defending tax cuts for millionaires and billionaires, who wouldn't feel it one way or the other if their taxes went up a mere 3% (as they were during the boom Clinton years), is a party that my soon find itself relegated to the dustbin of history.
And that's a shame, because we need a strong 2- or 3-, or 4-party system. But all we have now is one party that is ineffectual and terrified to stand up for what they believe in (the Dems); and one party who has driven themselves so far to the Right that no Republican president of the last 40 years (including Reagan) would even be allowed in at this point. Believe me, the tea people would never nominate a guy who raised taxes and nearly tripled the size of government.
A party who has made it their sole cause to fight for wealthy hedge fund managers and big oil CEOs.
The saddest part to all this is seeing decent, working-class people, who are struggling to get by every day of their lives, working 2 jobs, turn around and go to the polls and vote for a party that insists on defending corporate billionaires with all their might.
Dear Anonymous:
Thanks for reading and commenting. I apologize if I did not comunicate well enough in the post but I think I agree with most of your points and have discussed most of them in past posts. For example, our military budget and commitmets need to be drastically reduced. Why do we still have 80,000+ troops stationed in Europe? Social Security needs to be fixed and many times I have stated that the fix begins with uncapping the maximum income that Social Security can be taxed at and dropping S.S. payments to those that can afford to live without it (Buffet, Gates, hedge fund managers, etc.). In the post I point out that the rich who are avoiding taxes need to start paying from a fairness perspective. I think we are pretty much in agreement on most of your points.
The main point I wanted to get across in this post is that the political class, BOTH political parties, never gets around to the big issues (the elephants) facing the country like real, fair tax reform. They fret away time and energy on these relatively minor political talking points, to "energize their base," while the nation and those in most need suffer. Contrary to your statement, everything needs to be done to get this country's spending under control in a fair, compassionate, significant way. Sorry if I did not comunciate my same frustration with our do nothing politicians.
Bruno
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