Yeah, What Else Did You Expect

15Apr09

I cringe at the fact that here on April 15 I am sitting down to write an item about taxes.  How trite.  How cliché.  The Internet is being flooded today with people writing about this subject: “I hate taxes!”, “I love taxes!”, “My taxes are too high!”, “What are you going to do with your refund?”, “How am I ever going to get these done?”

I’ll start by dispensing with my take on all of those.  I hate how long it takes to do my taxes.  I love at least some of the things I get out of my taxes.  I think my taxes are too high (hence only liking some of the things I get out of them).  I am not getting a refund because I decided several years ago that I would rather not give the government an interest free loan–I had my money to spend all year long.  I got my taxes done and filed over two months ago and  took advantage of the fact that you don’t have to send the payment with the return.  My “last minute” activity was writing a check and taking it to the post office.

Former press secretary Ari Fleischer wrote an opinion piece for the Wall Street Journal a couple days ago how everyone needs to pay income taxes.  I really appreciate some of his points.  He sees a larger and larger portion of the public, through various deductions/credits/exemptions, ending up owing no taxes at all.  Mr. Fleischer particularly dreads the point when the tax-free population crosses that 50% mark at which point it would be nearly impossible to reverse the trend.  He would like to see the end of politicians currying favor by raising taxes for some people and lowering them for others.  The fair system would raise or lower taxes for everyone.  Mr. Fleischer would see the Social Security and Medicare taxes eliminated.  Not eliminate the programs; they would just become normal governmental obligations like national defense.  Which it essentially is–any Social Security taxes currently collected but not needed for benefits are given to the government to use, with a promise to give it back when it’s needed.  I like his conclusion about the benefit of absolutely everyone having to pay taxes.  People are more likely to pay attention to what the government is spending money on because when everyone is paying, they’ll want less spending so they can pay less.

I dislike the way Mr. Fleischer manipulates statistics to prove his point.  The frame he puts the numbers in shifts from one sentence to the next.  He talks about how a very small number of taxpayers are footing the largest portion of the tax bill.  He cites how the top 10% of earners in 2005 paid 72.8% of the income taxes.  First thing that went through my head was, “Sounds like a lot, but how much of the nation’s income did they receive?”  According to the same report from the Congressional Budget Office this 10% of the households earned 40.9% of the nation’s pre-tax income.  That does still seem unfair, but not quite as alarming as he first presents.

In looking at these charts I notice some other things.  I remember how the Social Security tax assessments stop at a certain income level.  In 2005 this was at $90,000; in other words, almost 90% of taxpayers are paying the 12.4% tax on their entire income (the CBO makes the assumption that if the employer didn’t have to make this contribution it would result in higher wages) while this “over-burdened” 10% pays a flat $11,160, whether they make $100,000 or $100,000,000.  When you look at the Social Insurance Tax Liabilities, those taxpayers with 25.8% of the income are footing 31.1% of the bill.  The shares of Corporate Income Tax Liabilities hit the wealthy end harder (81.6% of the liability out of that 40.9% of the income) while Federal Excise Taxes hit the low end (43.6% of the liability from the 25.8% of the income).

Especially since Mr. Fleischer and I both would enjoy a simpler tax code–replacing everything (Social Security, Medicare, estate taxes) with a nice, simple income tax system–let’s look at some of these numbers again and try to compare apples to apples instead of apples to bicycle tires.  The top 10% of all households in 2005 made 40.9% of the nation’s income and had as their share of the TOTAL Federal Tax Liability is 54.7%.  The bottom 60% of all households with 25.8% of the income had a 14.2% share of the total tax liability.  Yes, I would like to see those numbers a little closer together, but I do believe that those who can afford to pay more should pay more.  But it is not nearly the wholesale crisis Mr. Fliescher seems to imply.

Curious as to who is in the “butter zone” for total tax burden?  Incomes in the 81-90 percentile, between $67,400 and $92,400–14.2% of the income and 14.1% of the taxes.

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