In light of the tax cuts in the stimulus package, it might be time to revisit this post from October 8, 2008.
How can Barack Obama promise to cut taxes for 95 percent of America's taxpayers? To understand how this can be done, we need to understand who is paying taxes and how much they pay.
David Cay Johnston is a Pulitzer Prize winning reporter who specializes in taxation issues for the "New York Times." In his book "Perfectly Legal," he describes how the wealthiest Americans have shifted the tax burden to the middle class since 1981.
The median American household income is roughly $42,000 a year. That means that of the 104 million indivivual taxpayers in America, 52 million make less than $42,000 and 52 million make more than $42,000.
In fact, 90 percent of American taxpayers make less than $100,000 a year. The average yearly income of the top ten percent is $103, 860.
Now look at the top one percent. Up here the average income per year is $384,192.
If you isolate the top one-tenth of one percent, you get an average yearly income of $777, 450.
But the stunning figure is the top one-hundredth of one percent-a total of 13,400 taxpayers. Up here the average yearly income is $23,869,767.
Can you see how raising the taxes on these high income taxpayers can make-up the difference (and more) if we cut taxes to those making less than $150,000?
In the boom economy of the 1960s and 70s, until Ronald Reagan became president, anybody earning more than $350,000 had to pay 70 percent of anything over $350,000 to the government. Now it's down 35 percent!
Accumulated Wealth
And that doesn't even touch the accumulated wealth of these high rollers. Sen. Bernie Sanders (I-Vt.) says that the top 400 taxpayers have increased their accumulated wealth by $670 billion since 2001![1]
One way to tax accumulated wealth is to tax capital gains. The wealthiest taxpayers pay lower taxes on capital gains-the profits made off rents, royalties, dividends, stocks and bonds. They pay only 15 percent.
As billionaire Warren Buffet noted, he pays a lower percentage on his earnings than his secretaries do on their wages. Buffet says that is not fair.
Less than five percent of taxpayers who earned less than $100,000 earned any capital gains. In fact, 75 percent of all stocks are owned by those earning more than $100,000 - the wealthiest ten-percent of American taxpayers.[2]
Yet, Republicans insist that capital gains be taxed at lower rates than wages.
The Forgotten Tax
Another problem for the majority of American taxpayers is that the discussion of income tax rates ignores the FICA deductions they also pay. These deductions fund both Medicare and the Social Security Insurance Program.
Three-fourths of taxpayers pay more in these payroll taxes than they do in income taxes.[3] Employees pay 7.65 percent of their income in FICA taxes. Self-employed individuals pay 15.3 percent of gross income. Even Individuals who don't make enough to pay any federal income tax, must still pay these taxes on every dollar they earn.
Wealthy Americans avoid much of this tax. Any earnings above $97,500, for all of 2007,[4] are not subject to the FICA deduction. And the tax is not imposed on investment income (such as interest and dividends).[5]
Corporate Taxes
In addition to the loss of revenues from individual income taxes, corporate tax revenues have also dropped. In the 1950s, corporate income taxes provided 33 percent of our federal revenues. By 2002, it was down to ten percent.
Some companies are avoiding taxes by moving their headquarters to other countries. Many have simply changed their official address to a post office box in a Caribbean country.
Fair Share?
Now do you see how the wealthiest Americans have been screwing the rest of us since 1981? Joe Biden was right when he said that paying taxes is a patriotic thing to do.
Oliver Wendell Holmes put it best when he wrote, "Taxes are the price we pay for civilization."
<hr>
[1] Bernie Sanders on the "Thom Hartmann Radio Program;" September 26, 2008
[2] Paul Krugman, "The Great Wealth Transfer." Rolling Stone, November 30, 2006. http://www.rollingstone.com/politics/story/12699486/paul_krugman_on_the_great_wealth_transfer
[3] See Studies Shed New Light on Effects of Administration's Tax Cuts by David Kamin and Isaac Shapiro, Center on Budget and Policy Priorities, Revised September 13, 2004.
[4] The income cutoff is adjusted yearly for inflation and other factors.
[5] See http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_How we can cut taxes iAct_tax#_note-0.
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Comments: 22
I'm not saying the wealthy should be penalized for being wealthy, but the middle class and the poor should not be put upon to make up the difference. They do not get the same breaks as the rich.
Granted, I knew of these statistics before reading this. But I also know that this is not common knowledge to the general public. In fact, much of this would probably be shocking to the average individual.
There is tremendous irony when people are led to believe that we're somehow heading towards Socialism by having the tax rates of the Clinton years, and at the same time believing that the way away from this non-existent threat and out of the economic problems of recent history is to go back to the "good old days" where "success wasn't taxed"... with the 50's and 60's assumed to be the prime examples of this golden age. It's amazing the extent of how general knowledge and mainstream assumptions have been subject to this revisionist history.
Yes that is correct Republicans know that taxes not collected are reinvested in the economy, (rather than allowing the ever so productive and effective federal government to absorb most of it before they dole it out to their perfered recipients), lets let the economy benefit first.
"Now do you see how the wealthiest Americans have been screwing the rest of us since 1981? Joe Biden was right when he said that paying taxes is a patriotic thing to do."
No and No!
"Corporate Taxes"
Corporations pay no taxes, any additional costs foisted upon companies will filter down to the puchased of the product or service.
So to raise taxes on corporations is to raise the taxes of all citizens.
So what about Obama proposed cap and trade plan?
It was estimated that the previous plan would have added 50 cents to a gallon of gas/fuel which would cause the cost of all things produced and transported in the U.S.
Not to mention a huge rise in electricity costs being more that half of our electricty produced is by coal and gas, another rise in the cost of U.S. produced products.
Commuting back and forth to work will get more and more expensive, the poor and elderly will have to spend more of their income to get to work and heat their homes, the cost of education will go up because the school buildings will cost more the heat and cool, the cost of new schools will rise dramatically because of higher costs.
Well there went Obama claim of giving 95% of americans tax cuts out the window.
For example, one poster asserts that corporate taxes just get passe don to consumers. Nonsense. In a competitive economy a corporate income tax cannot just be passed on to customers, but in a non-competitive economy it can. In a competitive economy the cost may be borne by the owners through a lower rate of return or by workers through lower wages or it may be covered by increased efficiency.
I also suspect some of your readers would be surprised to know that people who make $50,000 to $75,000 annually pay the same share of their income to Washington as people who make on average $87 million plus, figures that when I first reported them in 2005 the Bush White House deemed resonable and did not quibble with.
The Obama administraton released the data (which the Bush White House kept secret) that showed that the estimates I had done and that the Tax Policy Center and Citizens for Tax Justice all did independenrly were accurate to a tenth of a percentage point.
Bob, you may also want to read my latest book, Free Lunch, which is about the billions of tax dollars paid at the cash register that ever get to government, but instead are legally kept by companies like Target, Lowe's, Wal-Mart and in some cases entire shopping centers. This is just one of many hidden mechanisms I reveal that take from the many to give to the few, including such beneficiaries of tax dollars as Warren Buffet, Tyco and Donald Trump.
FREE LUNCH shows how some companies and even whole industries derive all of their profits from the taxpayers, NOT from the market.
Also, I have left The New York Times to work on my own, teaching at Syracuse University's College of Law, writing for Tax Notes magazine, working on my next book and other ventures.
Isn't it obvious that the wealthy in this country have made their living on the backs of the middle-class and poor? Trickle-down (which someone refers to on her i.e. corporations rising the costs of products, etc. so go ahead and just tax the middle class so products will be affordable - what a SCAM!) We have been robbed by thieves. We, the majority of Americans have been held at gunpoint and shaken down. Right now, the top of the top ten percent are abscomding with the bail out banks money as fast as they can, taking all they can, before it all completely crashes - then they can go live on a tropical island or country and watch their country disintegrate while they drink champagne and get their daily massage from their new slaves.)
Thank you for sharing this.
I agree; this type of news should be gaining lots of exposure in the mainstream medias.
Thanks again.
Your posts consistently overstate the glorious days of Dem rule while blaming shortfalls only on Repubs. Sounds like Sov bloc writing at times...
We were much better off in the 60s and 70s.
In 1980, we were the largest Creditor to the world and the largest exporter of finished machinery and goods.
Now we are the largest Debtor and the largest exporter of raw materials - which are being used by foreign countries to manufacture machinery and goods.
We are not creating wealth anymore.
Not creating wealth? Bob wealth is not created just by making products, its also increasingly done by providing services such as financial, knowledge, and educational. Despite the many failures in our secondary schools for instance, the US tech/research colleges still are among the best in the world. Witness any decent school's percentage of foreign students for a clue on that. Much, if not most of the world's technical, medical, and other research is done still in the USA. Over 90% of the world's drugs are invented here as are the majority of medical procedures. Until the recent economic downturn and then the war on wealth started, US banks handled the majority of the worlds finances. We are in debt because the country now insists that government be at every level of our lives and pay for much of it. Even under LBJ, most of the money spent went to normal government programs with very little (at the time) going into wealth transfers. It is that cost that is crippling us. Nothing is free but too many people seem to think the government's work is for some reason.
Exporting raw materials is a a major deal for us because unlike most of the world, we actually have them and manage the renewable ones pretty well. In that list of export is food of course which we still are number 2 or 3 in the world for and number one for sheer farming efficiency. Other nations have cheaper labor, make as good a product, and less rules on manufacturing so of course we lose out to them. And we'll continue to decline on that subject as labor and environmental regs get worse. Our balance of trade is actually very good if you exclude oil, it's heavily in the black without it.
I know you are trying to prove a point so its more gloom and doom you need but realize much of what you are saying is out of context or flat out wrong. Also given the direction you are wandering, your reasons for our "decline" are far too simplistic.
Charles, that may be true, but the truth is that a large proportion of our population cannot afford these very drugs and procedures. We pay more for those drugs in this country than people in other countries pay for the same drugs. Is this fair?
The fact is that the U.S. has a deplorably high rate of infant mortality in this country. It has actually gone up rather than down. That is because many mothers cannot afford healthcare.
At least Arnold has Maria Shriver, a Kennedy and a Democrat to reign him in when he leans too far right!