Who’s Paying Their Fair Share of Taxes?

Do the rich pay their fair share? A common sentiment among people who demand the rich to pay their fair share of taxes have increased throughout the years. We’ve heard about how the rich uses tax loopholes to skimp out on paying their portion of taxes. But is it really a fact that the rich did not pay their “fair” share? However someone wants to define what is fair, we all need to look at what some groups actually pay. With empirical evidence, we can see that they pay even more than their “fair” share of taxes.

They Pay the Highest Share of the Income Tax

According to Tax Foundation’s 2013 income tax data, the top 1% (people who have AGIs of $428,713) has a 19.04% share of the nation’s adjusted gross income (AGI) but pays 37.80% ($465 billion) of the entire income tax. This also means that they have the highest average tax rates of all income groups, with an average tax rate of 27.08%. The top 10% has an AGI of 45.87% while paying 69.80% of the income tax. The bottom 50% (people with AGIs lower than $36,841) earns about 11.47% of the AGI while they pay only 2.78% ($34 billion) of the income tax [1]. Going three years back, 2010, shows that the top 1% has a share of 18.9% of the AGI while paying 37.4% of the entire income tax while the bottom 50% had an AGI of 11.7% while paying 2.4% of the entire income tax [2].

They Pay the Highest Amount of All Taxes

Other sources came to similar conclusions when looking at IRS tax data, with taxpayers with an income over $250,000 being the smallest percentage of filers of income tax (2.7% in 2014) and people with incomes lower than $50,000 represent 62.3% of filers [3]. Even though the top 1% is the smallest minority of filers, they still pay the highest amount of income tax compared to ALL groups. Although people may say that it’s only for income tax and it doesn’t represent the whole picture of who pays other forms of taxes, there is data that suggest that the top 5% pays the highest of all federal taxes. In 2014, people with income over $200,000 actually pay 46.7% of all federal taxes (income, payroll, and excise) while only having a share of 32.3% of the AGI [4]. In 2011, the top 1% pays 24% of all federal taxes while the bottom 40% had a share of 15% of the income (market income) while paying 4% of total federal taxes [5] (numbers were rounded). This is not to say that people in the bottom income brackets do not pay any federal income taxes as some sources may indicate (45% of Americans do not pay federal income taxes) nor should they pay more [6]. In the sense that it files under income taxes, then it is technically a true claim. But all people, regardless of income level, are taxed on their income to pay payroll tax (one of the biggest taxes on your income), which is the 2nd highest revenue generating tax for the federal government. The income tax, which is highly progressive (many taxpayers believe the rich should pay more), accounts for the biggest amount of federal revenue that funds the services the federal government operates [7]. It has accounted for 47.4% of federal government revenue during the 1940s and continued its trend as being the biggest revenue source that the top 1% contributes [3].

Economic Effects

When people say the rich should pay their fair share, it seems that they want more and more money to go to the government to fund more failing government programs. When other people see the bottom 50% not paying their supposed share of the income tax, their conclusion is to make them pay more to fund the government programs. Both conclusions are faulty and rest upon fallacious reasoning. When someone is taxed, it takes away resources. It reduces a person’s ability to consume and save. When you reduce their savings, less of those savings contribute less to capital accumulation that entrepreneurs draw upon when starting up their businesses. Less capital accumulation leads to less goods and services to be produced by entrepreneurs in the future, decreasing overall standard of living of society (this also reduces future government revenue). Furthermore, having a progressive tax system reduces incentives to build wealth, and increasing the tax rate does not increase government revenue. A lower tax rate actually allows the government to gain more revenue due to people being able to keep their money to allocate it to areas in the private sector (source of tax revenue) [8]. People get to spend more and save more, which contributes to society and the economy. In short, tax discourages consumption, savings and production, yet it is needed for government functions so taxing it at a lower rate is a better alternative than a higher rate. Lower taxes and less spending will let people become more prosperous. Targeting a group of people based on their income level is morally wrong, regardless of what cause you are fighting for. Even if the decision is made through the democratic system of voting, the majority voting to decide on where to allocate other people’s money cannot stand on any moral ground. May it be education, healthcare, or any program from the welfare state, targeting a group of people based on their wealth has no basis for creating a just society.

Sources:

1. http://taxfoundation.org/…/summary-latest-federal-income-ta…
2. https://constitutionalconservative.wordpress.com/myth-the-…/
3. http://www.pewresearch.org/…/high-income-americans-pay-mos…/
4. http://taxfoundation.org/blog/do-rich-pay-their-fair-share
5. http://dailysignal.com/…/how-much-do-the-top-1-percent-pay…/
6. http://www.newsmax.com/…/millions-hou…/2016/02/24/id/715976/
7. http://taxfoundation.org/…/income-taxes-account-largest-sha…
8. http://www.heritage.org/…/tax-cuts-increase-federal-revenues

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