Do the rich “pay their fair share”?
President Obama pleads for the rich to “pay their fair share”. Its the main justification given for raising taxes to pay for government services.
Will we have to raise taxes to help get our nation’s enormous debt under control? Absolutely!
But is it true that the rich aren’t pulling their weight as President Obama alleges?
That is today’s topic.
In this discussion the numbers will be boiled down to Occupy Wall Street chants.
Let the numbers speak!
A Word of Clarification
To be clear, this discussion is NOT about whether the rich can afford to pay more in taxes. They can.
This discussion is to answer the charge leveled by the President that the rich aren’t paying their fair share of taxes already. They are two distinct and separate issues.
Democrats, led by President Obama, claim the rich aren’t paying their fair share. Democrats use that charge to stigmatize the wealthy, an easy target, to justify the goal of increasing revenues. The rich make the perfect scapegoats for a spend-happy federal government.
For this discussion, 2008 Individual Income Tax statistics (downloaded as Table 1.1 for 2008) published by the IRS are used to investigate President Obama’s allegation. I explain why I do that in detail in the appendix at the end of this article.
For now lets just get strait to the nitty-gritty…
Drum roll, please… What are the Numbers?
According to the IRS… 142,450,569 individual income tax returns were filed in 2008. The total Adjusted Gross Income (AGI) of all those folks was $8.263 trillion dollars. That is roughly half of GDP.
After deductions their aggregate taxable income was $5.488 trillion. And when all was said and done they shelled out a total of $1.032 trillion dollars in taxes!
It is to be noted of the 142 million tax filings that only 90,625,862 of them reported taxable income.
Therefore, 36.4% of all filers paid no taxes at all in 2008. That percentage is reportedly up to 47% today as a result of the Great Recession.
Who are the Rich?
How much of that $1.032 trillion in 2008 were taxes paid by the “rich”?
For that determination we need to define what rich is. The President likes to define “rich” as folks making $250,000/yr or more.
Unfortunately, the IRS doesn’t have a $250,000/yr reporting category. It has a $200,000/yr and a $500,000/yr category, but not a $250,000/yr one.
For ease of discussion and to shut up Republicans complaining about taxing small business job creators, lets arbitrarily make $500,000/yr our dividing line between the “rich” and everyone else.
Talk Turkey in Occupy Wall Street Terms
Now, lets translate the 2008 IRS stats into Occupy Wall Street jargon – the 1% vs. the 99%.
898,912 filers reported making $500,000 or more in 2008. In OWS terms they become the much protested 1%.
In 2008, those folks were even fewer than 1%… they were the top 0.63% of all wage earners.
By Occupy standards that certainly qualifies them as the so-called “rich” who don’t pay their fair share.
The top 0.63% paid $342.9 billion in taxes in 2008. Their aggregate AGI was $1.469 trillion. Their total taxable income was almost the same at $1.459 trillion.
The rest of us, the 99% (99.37% in our case), paid $689 billion in taxes in 2008. We had an aggregate AGI of a very healthy $6.794 trillion. We had taxable income deducted down to $4.029 trillion.
Income Taxes Paid by the Rich in Raw Tax Dollars
Plug and chug (actually, the IRS does it for you) and you will find that the “rich” – the miniscule top 0.63% of all wage earners – paid 33.2% of every tax dollar collected off individual income in 2008.
Conversely, the bottom 99% (99.37% in our case) paid 66.8% of all individual income taxes in 2008.
Income Taxes Paid by the Rich as a Percentage of Gross Income
Another way to look at taxes and “fair share” is taxes paid as a percentage of total gross income.
The rich are often accused of paying an unfairly lower percentage of their total income than the 99.37% because of special loopholes, tax dodges and stuff like that. They do have more loopholes, for sure, but how much difference does it make?
Theoretically, the rich could still be paying a high percentage of total raw tax dollars, yet an unfairly smaller proportion of their actual earnings in taxes than do the 99.37%.
It could then be validly argued that the rich are not paying their “fair share”.
According to IRS statistics in the above graphic, the top 0.63% averaged paying 23.5% of their gross income (AGI) to the IRS in taxes.
The lower 99.37% averaged paying 12.0% of their gross income (AGI) to the IRS in taxes.
The 0.63% paid a hair under twice the percentage of their gross income to the IRS than did the 99.37%.
Is the President right? Are the rich failing to “pay their fair share”?
The question for the reader is this:
When the top 0.63% of all wage earners paid 33.2% of all individual income taxes in 2008 then did the “rich” pay their fair share?
Is 33.2% a “fair share” or not?
The top 0.63% averaged paying 23.5% of their gross income in taxes compared to 12.0% for the 99.37%. Is that a “fair share” or not?
If not then what is a “fair share”? Should the top 0.63% pay 40% of all taxes? 50%? More?
What about the bottom 36.4% who paid no taxes at all in 2008? Did they pay their “fair share”?
Is it fair to the 90 million filers who paid taxes to pay for all the government services of the 52 million who paid nothing? Even if just a small token, should they do their part for “shared sacrifice”?
At last, armed with IRS facts, here are two new chants for OWS marchers…
“They paid 1/3rd, we paid 2/3rds!” or “They paid twice, we paid once!” Both slogans are accurate.
Taxes… a simplified mini-primer
The federal government collected around $2.3 trillion in total revenues in 2008. Of that $1.032 trillion was in individual income taxes.
So why in the discussion above is only $1.032 trillion of it being discussed?
The federal government collects revenues through six primary cash registers:
- Individual Income Taxes
- Corporate Income Taxes
- Employment Taxes
- Excise Taxes
- Gift Taxes
- Estate Taxes
The first two, individual and corporate, are infamous for their much dreaded annual April 15th deadline. Corporate taxes are about 1/3rd the amount of individual income taxes.
Many of the 142 million tax returns filed in 2008 are couples filing jointly so the number of returns isn’t a 1 for 1 correspondence to population statistics. For discussion purposes that detail is ignored.
At about $877 billion in 2008, employment taxes are the federal governments 2nd largest income source… better than twice corporate income tax collections.
But part of that money is returned to individual tax filers in the form of a refund check from the IRS that many folks look forward to getting each year.
Employment taxes are withholding and payroll taxes taken out of every payroll check issued in the United States. Employers are required by law to deduct them from paychecks and send the money directly to the government.
Those revenues stream into the Treasury continuously throughout the year.
Withholding, of course, figures prominently into individual income taxes.
Payroll taxes pay for Social Security and Medicare.
Excise taxes are business taxes on the manufacture and distribution of non-essential consumer goods. At around $49 billion, it is small potatoes compared to individual, corporate and employment taxes.
Estate and gift taxes are pocket change compared to other taxes, almost not worth mentioning. Those are collected when… welll… somebody is given an expensive gift and/or someone inherits an estate.
Since corporations aren’t people, as liberals astutely remind us, it kinda doesn’t make sense to discuss them. Profits made from them by the 1% and 99% are eventually reflected in their individual income tax earnings.
Given all this it makes logical sense to use individual income taxes as the basis for determining whether or not the rich pay their fair share… especially when that is roughly half of the entire U.S. GDP.