Recently, I had an argument with a
friend who claimed that the “rich” in America paid no taxes. By the “rich” he meant the top 1%, a
group that has been demonized by President Obama (although he is a member) as
well as by the “Occupy” protestors. I recalled seeing somewhere that the top 1%
actually paid almost 40% of all Federal income taxes but my friend could not
believe it.
A quick check on the web showed
that I was correct. Here are the figures. In 2009 the top 1%, those with
Adjusted Gross Income (AGI) in excess of $343927, paid 36.73% of all Federal
Income taxes that year. That was not an aberration for the 2008 figures were
about the same. This calculation does not take into consideration the amount
the 1% paid in other taxes, like state and local income taxes, sales taxes, or
real estate taxes.
The top 5%, those with AGIs over
$154643, paid almost 60% of all Federal income tax. The top 25% (AGI over
$66193) account for 87% of all income tax. Finally, the bottom 50% (AGI below
$32396) pay practically nothing (2.25%) of the Federal tax bill. This last
group must include most of the Occupy protestors.
Typically, when people like
President Obama say, “tax the rich”, they rarely provide any kind of realistic
figure of how much revenue will actually be gained by their proposals. When
studies show that the increased revenues will come nowhere near closing the
ever-growing federal deficit, it becomes clear that “tax the rich” is a
political ploy and not meaningful fiscal policy.
Instead of increasing taxes on the
rich, government should focus on increasing incomes for everyone. Why does only
10% of the population make more than $112124 per year? Why does 50% of the
population make less than $32396 per year? Government should exist to promote
and protect wealth accumulation, and not to destroy it.
Even if advocates of higher
taxation have their way and increase taxes on income, they will not be able to
reduce the deficit. The Federal government will be forced to look for other
sources of revenue. Eventually, in addition to taxing income, politicians will
discover the tax gold mine of an asset tax.
In my career as a financial
advisor I had many clients who had modest incomes and paid very little in
Federal income tax, but who could be considered millionaires. I recall one
elderly couple with a house worth about $600000 and investment assets of about
$400000 from which they took an income of about $10000 per year to supplement
their social security income. They lived modestly since their house was free of
mortgage debt and paid no Income tax. However, like many senior citizens they
did pay a substantial real estate tax on their suburban home.
A real estate tax is an asset tax.
It is calculated on the basis not of your ability to pay but on the value of
your home. It is the major source for local government funding in most states.
It always increases and will eventually drive most seniors from their homes. It
will not surprise me to see the Federal government propose some kind of asset
tax in the near future. It wouldn't take much to see the government add a tax on mutual fund assets and have the fund companies collect it along with their management fees. An asset tax is a form of confiscation.
Anyone who is in favor of higher
taxation should view the attached video from an Indiana newscast to see where
his or her taxes actually go. ###
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