One of President Obama’s campaign promises- one that was greatly celebrated by the bleeding hearts- was to raise taxes on those families making over $250,000 in income. The outcome of the 2008 election shows that this was clearly a popular plan. Liberal class warfare is accepted by liberals and moderates alike (and even some conservatives) because most people, even most highly educated people, do not know where they stand, statistically, or even how the graduated income tax works. While it’s worthwhile to debate how much is Leftish wealth redistribution, Obama’s proposals can really be put into perspective by examining actual tax statistics that are provided by the Internal Revenue Service. For those of you who are tax professionals or have studied the subject, this is probably no surprise to you. However, it is our responsibility as American citizens to understand the system by which the government claims our income, and it our duty to share our knowledge with our fellow taxpayers. Here are the facts:
The IRS administers a progressive income tax, meaning that higher income dollars are taxed at a higher rate. A policeman who earns $50,000 a year pays the same amount of tax on his $50,000 income as does the doctor who earns $200,000 a year. However, the doctor will pay a higher rate on his income from $50,000 to $75,000, and a still higher rate on dollars from $75,000 to $100,000, and so on. This sets up a system in which the more the doctor works, the less he is “paid” for his work after taxes are taken out. Perhaps the next time you cannot get an appointment because your doctor has chosen to take the afternoon off, you should blame the graduated tax system.
The statistics tell of an even more insidious effect. The top 50% of earners shoulder 97% of the tax burden, meaning that the bottom 50% of earners pay about 3% of all taxes. To be in the top 50% of earners, a person need only make $30,881. Furthermore, the bottom 50%, in addition to paying almost none of the tax, are the citizens likely to be receiving government benefits (retirees, welfare moms, disabled people). Not only do these people get a free ride, but we’re paying them to take it.
In 2005, the most recent year for which such statistics are available, total individual income tax collected was $934,703,000,000 and the average tax rate was 12.45%. The statistics are compiled by return, meaning that a married couple is treated as one entity (so if the income is $40,000, this includes unmarried individuals who make $40,000 as well as couples for whom the combined income is $40,000). Also, the income amounts, in dollars, are pre-tax dollars (meaning that taxes are paid out of this amount).
• The top 1% of income earners paid an average tax rate of 23.13%.
• The top 5% paid an average tax rate of 20.78%.
• The top 10% paid 18.84%.
• The top 25% paid 15.86%.
• The top 50% paid 13.84%.
• Keep in mind that the top 50% rate includes and is averaged with the top 1% rate. So someone in the 50th percentile actually pays less than 13.84%, because his rate is averaged with the higher rates of those who earn more.
What is truly ridiculous is that the share of income that each group earns does not line up with the corresponding share of the taxes that the group pays. While the top earners do have a larger share of income, they pay a share of taxes grossly out of proportion with that income.
• The top 1% of earners claimed 21.20% of all income but paid 39.38% of the total income tax. These earners paid a share of tax equal to almost double their share of income.
• The top 5% of income earners made 35.75% of the income, but paid 59.67% of the taxes.
• The top 10% of earners got 46.44% of total income earned by individuals, but paid 70.30% of taxes.
• The top 25% of earners had 67.52% of the income but paid 85.99% of the taxes.
• The top 50% of earners claimed 87.17% of total income but paid 96.93% of the taxes.
• The bottom 50% of earners claimed 12.83% of income but paid only 3.07% of income taxes. People in this category were also significantly more likely to be receiving government benefits (getting money back from the government).
Liberals like to say that the “rich” get more income so they should be taxed more. The Left loves to write about taxing “the rich,” but “the rich” is a class they leave largely undefined. The statistics below show that “the rich” is not limited to those people featured by Robin Leech on Lifestyles of the Rich and Famous, but “the rich” actually encompasses much of the middle class.
• To be in the top 1% of income earners, a taxpayer need only earn $364,657. A person in the top 1% will pay an average tax rate of 23.13% of his income (almost 1 out of every $4 goes to pay income tax).
• An income of only $145,000 qualifies one to be in the top 5% of income earners.
• The top 25% of income earners includes those people who make $62,068 per year. These earners pay 85.99% of all income taxes.
• To be in the top 50% of earners, one need earn only $30,881.
• To really put this in perspective, a person in the top 50% of earners, but not in the top 25% of earners, makes between $30,881 and $62,067 dollars per year and pays 10.94% of all taxes.
So what’s the point of all of these numbers? Basically, it’s to show that the vast majority of the “rich” to whom the Left refers are not business tycoons with houses on every continent or Paris Hiltons who shop at Gucci and live for the next fashion show. The “rich” are people who have nice house that’s by no means a mansion. The “rich” are people who work hard every day. The “rich” are people for whom raising the tax rate a “mere” 2% may seriously compromise their ability to send their children to the college of their choice or to obtain a necessary medical procedure that their insurance does not cover. The “rich” is you.
Statistics can be found at: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html