Friday, July 27, 2012

A Graphical View Why Taxing The Rich More Without Reducing Spending Is Still Senseless

Without going into the details of what we have covered dozens of times in this blog, it is safe to say that the Federal government easily wastes away over $500 billion a year in taxpayer wealth due to inefficiencies and criminal fraud in just a half dozen government programs including Social Security, Medicare, Medicaid, tax evasion, unemployment benefits, and food stamps. If we were to detail out inefficiencies, waste, and government fraud in the rest of the Federal government every year, I am quite confident we could easily find hundreds of billions of dollars more waste.

That is why it has always been our position that no American, rich or poor, should have his or her taxes raised until the politicians in Washington learn how to manage the taxes they already receive in a more responsible manner. It is senseless to give these people more of our wealth when they have shown no ability to spend it responsibly. That is why no matter how "fair" or 'unfair" our tax process is today, nobody should pay more when hundreds of billions of dollars are wasted every year.

Which gets us to our post today. I would bet that if you asked 100 people on the street to estimate the number of millionaire owners in America every year, i.e. how many Americans earn a million dollars every year, I would bet that at least 95% of them grossly overestimate the reality of that question.

To illustrate, let's check out a few graphs of actual IRS summarized tax information from the official IRS website from the tax year for 2009. This appears to be the latest year of tax information available online to the public but I doubt if the graphs and the conclusions would change much once the 2010 and 2011 tax data becomes available.

The first graph contains a simple bar chart which shows the percentage of tax returns filed in 2009 by Adjusted Gross Income bands (double click on the picture for a larger view):













The second graph contains a simple bar chart which shows the percentage of the nation's taxes paid in 2009 by Adjusted Gross Income bands:











This third graph puts the data from the previous two charts on the same graph:













Let's look at the numbers behind the graphs:
  • In the first graph there looks like there are no taxpayers in the country that earn over a million dollars a year. And that is almost correct. In 2009, of the more than 140 million personal tax returns filed, only about 237,000 of them had earners that were over a million dollars for the year, as measured by the Adjusted Gross Income line.
  • This paltry number comes out to only .17% of all earners that year. That is why the graph looks so emply on the right, there are just not that many Americans who earn over a million dollars a year.
  • If you consider those "rich people" earning over $200,000 a year, as the President considers them to be, then you will find that there were only about 3.9 million tax returns showing earnings over $200,000 in 2009, or only about 2.8% of all returns.
  • If you look at the super high earners, those Americans whose tax returns showed they earned over $5 million in 2009, you find that there were only 22,600 or so out of over 140 million, accounting for .00017% of all taxpayers that year.
  • This last point is another reason why the right side of that graph looks so flat, there just aren't that many Americans in the country that earn millions of dollars a year.
  • The second graph is almost a mirror reflection of the first. It is the left side of this graph that is almost not even there since the number of tax dollars paid by the people in the lower AGI bands is almost non-existent vs. the percentage of overall taxes paid by the higher band AGIs.
  • For example, while 66% of the people who filed tax returns in 2009 earned less than $50,000, this group only paid about 7% of all the taxes paid that year while those earning over $200,000 comprised only 2.8% of all filers but paid over 50% of all the taxes collected.
  • The third graph puts the previous two together on the same chart where we see that the very few people earning over $200,000 a year pay a very high percentage of all of the taxes.
  • Now, I am not judging what is the "fair" amount of taxes each person should pay. But consider this: if we made those Americans earning over $1 million a year to pay an income tax rate of 100%, i.e. the government would confiscate ALL of the earnings of every millionaire earner, and spread that confiscated money over the rest of the 140 million personal tax returns, each one of those other tax filers would receive a total of about $4,900. Not a bad haul.
  • But that haul would only last for a year or so. If the governemnt actually did confiscate 100% of those millionaire dollar earners, you can be sure that those millionaire dollar earners would not be out the next year working hard to duplicate their earnings only to lose it all. Thus, while those other 140 million or so tax filers would get a one year windfall of $4,900 on this 100% confiscation scheme, that is really fool's gold. In subsequent years they would have to pay much more in taxes to cover the shortfall from the current million dollar earners giving up.
  • Lets' be more realsitic and assume that the million dollar earners had just another 10% of their earnings confiscated by the Federal government and given out to the other tax filers.
  • This 10% surtax would bring about $490 for each of the other tax filers. This $490 comes out to only $1.34 a day, hardly enough to make anyone rich.
Of course, these are best case scenarios. They assume that the confiscation numbers, either 100% or 10%, actually and miraculously got back to the other tax filers. You and I both know that the Washington political class would take those additional taxes and waste it somehow, somewhere, probably on a political crony or campaign donor or criminal fraud.

The bottom line of all these graphs and numbers is that there are just not enough "high earners" in this country to hit up for more taxes and solve all, or even some, of our financial problems. The problem is too much government spending and waste, not too little in taxation.

Consider this: if the government did indeed confiscate EVERY dollar of EVERY millionaire dollar tax filer in 2009, that confiscation would cover less than 49% of that year's Federal government's deficit spending. So taking EVERY dollar does not do the trick, taking less than that, say 10%, would do even less of a trick.

An old saying goes as follows: "Economies cannot tax themselves to prosperity." It has never been done in the history of man. Why this President thinks he can do it is beyond me. There are just not enough millionaire earners to go around, only .17% . However, there is enough wasteful spending to go around, all of which needs to be stopped.


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