Who Really Pays the Taxes in This Country

Author: Vale

tax-the-richWith the federal deficit spiraling out of control and the country about to fall over the fiscal cliff, it's back to tax talk.

The gist of the argument is that Obama and the Democrats want to tax the 'rich' and Republicans want to leave rates where they currently stand. The media and the left have pounded this discussion into the table non-stop and make the claim that the 'rich' don't pay enough taxes. The president himself has said it, and most of Americans believe it. Have the politicians bothered to look up the facts or are they just playing populist politics to fool the people?

Let me start with a thought experiment: Say that you are throwing a party with your friends. Everyone is supposed to bring something. What situation would bother you more: a friend only bringing some chips and dip when they were told to bring sandwiches, or a friend not bringing anything, and then going into your wallet and taking out twenty bucks when he arrives? I think the answer is clear for most people that the second situation is worse. But why would this not be tolerated on a micro scale, but is celebrated on a macro scale? The situation that I just described is exactly what we have in the federal tax system. You've heard of the 47%, but it is actually quite worse than that because most of these 47%ers are receiving a negative tax rate. 

Liberals seem to be a little confused about something: They keep mentioning that the 'rich' should pay their fair share, but they don't seem to understand the definition of fairness. Nearly everyone agrees that the only fair taxation system is where people put in an amount proportionate to their income. Before continuing to read, think about that statement. Isn't it agreeable? Could you take a position against that statement and be able to defend it?

Most agree that it would be unfair if there were a flat fee that everyone had to put in, such as $1000, because the poor would have to pay a larger percentage of their income than more successful people. Okay fine. So if it is not a flat fee, then to be proportionate to income it will have to be a percentage of income, right? But then stop! Suddenly up is now down, left is now right, and fair is not considered fair anymore. The rules change and liberals suddenly want successful people to pay even MORE than what was previously considered fair. Now successful people have to pay a higher percentage of their income to subsidize other people who aren't contributing their fair share. And then liberals have the audacity to make claims that they still aren't putting in enough? Are they just ignorant of the facts or are they just pushing their socialist agenda? They do not seem to understand the the 'rich' already do pay a higher percentage of their income and a higher dollar amount than their lower earning counterparts on average. Of course, the typical American would not know this when high profile politicians such as Obama repeatedly keep touting the horn at every possible chance and making ignorant comments such as "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million." Really? How many examples could you possibly present that represents this situation? Because it's definitely not the norm. Warren Buffett started this meme with the mention that his secretary pays less of a percentage in taxes than him (while omitting the different types of income each earns). 

So, let's defer to the facts. Look at page 6, figure F of IRS return data (below). 




Take a look at the row titled "Total income tax minus refundable credits as as a percentage percentage of AGI." What you will see there is an upward sloping tax rate with respect to income (that trails down slightly beyond $2 million). The tax percentage of income of someone making more than $10 million a year is a rate 6 times more than the rate for someone making between $30-50k on average. And below $30k a year, the average federal tax rate is negative. You have a whole boat load of people freeloading (47.9%), with a large crowd of them getting paid not to contribute and most of the tax burden is placed on a small subset of the population (table below).

2010 tax burden

Right about now is when someone usually will start crowing about the payroll taxes that he and other workers pay. Yes, you do pay these, but these are taxes for different purposes. These are not the taxes paid hitting the point of this discussion. You get these monies back in the form of social security, and healthcare when you are old. These are not taxes being paid and get vaporized to run the federal government. Don't want to call social security or medicare an entitlement because "you've been paying into the system all these years?" Then stop sounding the horn about all the payroll taxes that you've paid to justify your existence in this country - you can't have it both ways. But even then, we still have the freeloading 15: the 10 percent of 'taxpayers' who get paid not to pay federal or payroll taxes. This is welfare laundered through the tax code plain and simple. 

taxpostcardUsually about this time is when those making the arguments above are cornered because they've just been proved wrong on both claims that the 'rich' pay less of a percentage of income or less total money than everyone else, so they just throw up their hands and say, "Well, it is okay if they pay more than they currently are now." I would respond in two ways: 1) These 'rich' are still part of the economy and actions against them will still impact the economy. And 2) there is a huge preoccupation with 'rich' in this country but the focus really shouldn't be on the producers, but on the takers. How can you possibly complain about those contributing tax dollars to the system, but not be bothered by those taking from the system? Personally, I'm a lot less worried about a producer contributing hundreds of thousands of dollars a year and taking care of his own affairs than the millions of leeches sucking this country dry.

So what is fair exactly? A flat percentage tax with limited deductions is the most equitable tax system, by definition (it would also have the added benefit of simplifying the tax code; see the form to the left). But voters are usually asked to vote for public policy that will discriminate against people they are jealous of, and they vote for policies that will prevent any of the burden from falling on themselves. As the system stands now, how can it be fair for someone to vote for higher taxes on someone else? I've heard the answer many times: "Well, what do I care?" The tax does not affect them and they have no skin in the game, so of course it is easy for them to vote to have  someone else shoulder their tax burden. They are being asked to vote for discriminatory policy with myopic benefits to themselves. Anyone who votes for higher taxes that targets another demographic should have to be subjected to those higher taxes, Period. If that were the case, we'd have to most fair tax system in the world.


# known 2013-10-14 00:45
Govt can print currency.
Govt need not impose taxes.
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+1 # Vale 2013-10-14 17:14
But they can't get enough for the spending in the trillions without causing hyperinflation. However, you should know that that 2-3% yearly inflation is a result of printed money, so they are taxing us a little more than 'advertised.'
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# Gohn Jalt 2013-10-29 14:23
Printing currency *is* a tax on wealth.

And, with a progressive tax system, the resulting inflation pushes people into higher brackets.

So, printing currency taxes twice.
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-2 # Keith 2013-10-13 21:28
If we had high tariffs and a secure border, I'd be okay with a flat-tax on income over $100K.

You're ignoring opportunity cost taxes. Opportunity cost taxes are money that people would be earning, if not for government regulation. Since it is impossible to calculate these taxes, it is impossible to ever determine who pays the most in taxes.

Plus, they won't ever collect social security because the anti-prosperity powers that be in both parties keep waging a war on economic growth that's needed to keep the program afloat.
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+1 # Vale 2013-10-14 17:32
You're ignoring opportunity cost taxes.
Not sure I am following you. Taxes that you 'could' be paying if for a different career?Quote:
Since it is impossible to calculate these taxes, it is impossible to ever determine who pays the most in taxes.
Table F, above: actual taxes paid. Quote:
Plus, they won't ever collect social security because the anti-prosperity powers....
They won't collect enough because it is a class 3 Ponzi scheme of the grandest scale. The benefits given out in the past were too generous and our population is living longer than ever with fewer children.
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+4 # Vale 2013-04-05 14:27
I'm definitely more worried about the millions of leeches sucking this country dry: The median household income is $138 per day, but the median welfare COST is $168 per day. How on earth is that justifiable?
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-3 # Lou 2013-08-31 17:51
Welfare doesn't pay $168 / day lol. Its more like $1.25 a meal ... just enough to keep those on it from taking other peoples **** (or going to jail to stay alive which probably would cost $168 / day).

Personally I am more concerned with the churches and corporations who are reporting billions in profits while skirting all tax liabilities who then use those profits to influence government for even more favorable treatment. Mathematically they are the bigger 'leeches'. And if 'trickle econ theory' worked (the justification) ... it would be working right now as wealth inequality is at an all time high and the alleged job creators all seem to be reporting record profits.
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+1 # Vale 2013-08-31 19:49
That's including all benefits. It's $746 Billion a year according to the underlying .gov source.
An organization that doesn't take money from the government can't be labeled a leech. Although I agree with you that they should be taxed on income they make as well. But a leech would a net taker.

There has never been a trickle down "economic theory." It's a straw man argument. The flawed liberal reasoning is that if a guy goes out and makes a million dollars, he prevented a bunch of more people from making it or took it from those people. It's not a zero sum game. The wealthy created more of their own wealth through adding value to society. Read the last paragraph of

Here's the best response to that video you posted
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-2 # Lou 2013-08-31 22:12
Welfare recipients dont make $40k+ annual. The $168 / $137 didn't come from the senate budget committee report it came from conservative tabloid Actual benefits are published.

In the context of the discussion I think leech is a fair term to describe anyone who benefits without contributing. Companies & churches rely on roads for goods and to provide services. The fire dept comes when they are on fire. The publicly educated society works for them. Police, running water, etc. Not paying in while benefiting from these commodities is 'leeching'.

And the flawed conservative argument is that liberals want wealth distribution. Nobody is mad because someone made a million dollars ... its that too many who do get to the top turn around and kick the ladder. And anyone who denies this is happening has their head in the sand.
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+2 # Vale 2013-09-01 11:56
Not income, but spending. They may not be getting a check for $168, but it is costing the government that much according to the source. The government is very inefficient, so that's not hard to believe. Medicaid spending probably eats up a good portion of that spending.

Corporations get a bad rap on taxes. One example gets cited of a corporation paying zero income taxes one year (GE), or a company that paid a small amount because it earns money outside the country and leaves it there in overseas local subsidiaries and gets taxed at the local rate (Apple) and then it becomes gospel that corporations don't pay income taxes. All the prior years of billions GE paid before are suddenly forgotten about. Or that they lost a lot of money in the financial crisis and the zero tax for the one year was a result of a large loss carry-forward write off. The small details are forgotten.

Roads are paid for with gas taxes, car registration fees, schools are paid for with property taxes. Fire and police are also paid for with local sales/property taxes. Depending on the local government laws 'non-profits' can be exempt from paying taxes and this includes churches. If you want churches to pay then you should want other non-profits to pay as well. I will agree with you that everyone should pay taxes. When someone else is not paying, then you are subsidizing those people. I looked this up as to the justification of why churches don't pay and this is what the Supreme Court said in Walz v. Tax Commission of the City of New York, 397 U.S. 664 (1970), "New York, in common with the other States, has determined that certain entities that exist in a harmonious relationship to the community at large, and that foster its 'moral or mental improvement,' should not be inhibited in their activities by property taxation or the hazard of loss of those properties for nonpayment of taxes." However there is no constitutional right for tax exempt status. Those who want churches to pay should be trying to change the laws at the local level. Do churches provide some benefit to society that outstrips their non tax liability? I don't know.

But I wonder who leeches more? The 20% of American households on the government dole or non-profits in the country? A priori, I am inclined to think the 20% of American households.
I think it is very clear that liberals want wealth redistribution. They are complaining about income inequality and 'social justice' all the time. They want them to have an even higher tax burden even though they are footing most of the bill. Can you elaborate on the kicking the ladder situation? Are you referring to business competition?
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-2 # Lou 2013-09-01 16:27
Per the dept of commerce its nowhere near. If it is I would think the priority should be fixing the massive inefficiencies not reduction of disbursements.
Corporations get a bad rap on taxes. One example ...
Corporations get a bad rap because they abuse the system. Its not limited to a select few with specific circumstances. But like the able-bodied welfare recipient nobody is going to admit it.
Roads are paid for ... If you want churches to pay then ...
For sake of this discussion I think we can agree taxes are taxes. As far as non-profit liability … I have a tendency to align with the opinion that when a non-profit is involved in shaping government policy that they no longer have a ‘harmonious relationship to the community at large’ and that their tax exempt status should be revoked. Churches and political activism groups fall into this category.
I think it is very clear that liberals want wealth redistribution …
True there are liberals who just want someone else to pay their bills. Just like there are conservatives who hate Obama because he is black. Per my FB page, conservative networks have done a brilliant job convincing people that they even constitute the majority. But they dont, and the general consensus is usually just equal opportunity. As it relates to the kicking the ladder … its beyond healthy competition. Its lobbyists ensuring that company A gets gov contracts that company B is more suited for. Its weakening public education and making higher education unaffordable. Its Citizens United which sold our electoral process. And undeniably the above is endorsed predominantly by the current members of the republican party.
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+1 # Vale 2013-09-02 10:25
Quoting Lou:
Per the dept of commerce its nowhere near.
Do you have a source?Quoting Lou:
Corporations get a bad rap because they abuse the system.
The majority of corporations do pay taxes though. Not saying it is a majority of government revenues, but ultimately, taxes are paid by citizens because the cost of the product incorporates those taxes into it. Quoting Lou:
For sake of this discussion...
Agreed.Quoting Lou:
Per my FB page, conservative networks have done a brilliant job convincing people that they even constitute the majority.
Conservatives are a majority: Lou:
Its lobbyists ensuring that company A gets gov contracts that company B is more suited for.

Specific examples?Quoting Lou:
Its weakening public education
Teachers unions do a good job of weakening it since they are against having any standardized measures of performance. They are more worried about keeping jobs than having good teachers.Quoting Lou:
and making higher education unaffordable.
This is a result of supply and demand. College demand is almost inelastic because parents/teachers/counselors/politicians for the last two decades have been indoctrinating their children that college is the only way. In fact, Pell grant funding has doubled since Obama took office. Throwing more money at it is only going to make it more expensive for the people are aren't getting a government check.
Not everyone should go to college. And encouraging college for unsuitable students only makes the costs higher for the serious students. The graduation rate for the nation is 55% after 6 years. Those 45% are wasting a lot of seats.
To top it off you have a lot of students coming out of college with worthless degrees that can't even get them jobs.
Quoting Lou:
Its Citizens United which sold our electoral process.
The US Supreme Court made the ruling.
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-6 # known 2013-03-06 02:21
US had 91% income tax rate in 1944.
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+3 # Vale 2013-03-22 09:10
Read about that top rate:
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-3 # Milt 2013-02-20 16:34
The absolute worst economy and societies on the planet right now are one with FLAT TAXES -- the one I am most familiar with is Ukraine, I have lived there briefly and visited several times. The flat tax has been a big factor in the limited social safety net, and the fact that there are literally large populations that are starving. No WIC, no welfare, no soup kitchens, etc etc.... and the rich there have everything, they run the show, skim off the top in every transaction and keep the system regressive and oppressive. The flat tax is NOT in the common social interest - research it. Progressive tax plans are the best, the most progressive the better --- why? because of all the inherent advantages and political 'over-represent ation' that money has ..every skid is greased for the wealthy...Progr essive tax systems provide some better assurance of a system when equal opportunities abound. Want one case to prove my point? Who was the biggest flat tax promoter ever? Steve Forbes, the billionaire... second biggest, maybe Herman Cain -- Monied/privledg ed/corporatist plutocrats both.
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+2 # Vale 2013-02-21 19:36
Worst economies? Define worst. GDP? It is hard to make apples-to-apple s comparisons because most of the countries with a flat tax are in emerging markets, so growth is usually higher to begin with. But look where the US and UK are relative to a sampling of the largest flat tax countries according to wiki

Of that sample, the US and UK are dead last for the recent data with the exception of Hungary tied for second to last. For most of the last 20 years, almost all of the countries have had higher growth than both the US and UK. However, each of the countries implemented their flat taxes at different times. Estonia switched around 1995, and Russia in 2001.

But your logic is off. It kind of goes like this:

I gave my dog a bath
After the bath, I found a flea
Therefore giving dogs baths gives them fleas

The missing information? The dog likely had fleas before the bath. Similarly, countries from the USSR had corruption problems long before they implemented flat tax reforms. To pin corruption on the flat tax is ludicrous.
And I can poke holes in your thesis further by pointing out that not all countries with flat taxes are high in corruption. For comparison, the USA ranks at the 86% percentile for least corrupt.

Estonia, with a flat tax, scores the 79% percentile

And by your logic then having a high progressive tax code would prevent corruption? That claim doesn't pan out either.

What would be the most progressive tax code possible? State-owned-com munism. You can't earn any income, you can't own anything, but the state takes care of your needs. Yeah, that has worked out well in the world's history.

Furthermore, the flat or progressive nature of the tax code has nothing to do with the implementation of social programs. That is public policy.
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-2 # Lou 2013-01-07 21:41
I think the way the author framed his argument is disingenuous and that his analogies don’t accurately represent issues. Example; economic prosperity isn’t a party you have the option of attending, choosing to not extend a (failed) temporary relief policy isn’t ‘raising rates’ and no consideration of sales tax is being attributed to the 47% he alleges contribute nothing. Regardless I think that instead of debating tax code through simplistic, dumbed down, selective analogies this should first be looked at philosophically.

That said … there are 3 people on a boat. Your 3 days from land. 1 person has no food, 1 person has 3 days food, 1 person has 48 days of food. Its in everyone’s best interest that everyone else lives. What do you do?
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+9 # Vale 2013-01-08 07:59
The party represents the US federal government services in that everyone should be contributing if they are benefiting from its services. First off, why would it be necessary that everyone else on the boat lives? Cruel perhaps, but realistic. Are YOU taking half your paycheck to feed orphans in Africa? Orphans in America, perhaps? There are a lot of starving people out there and I really don't believe that you are going out of your way to do something about it.
Secondly, why does the first person have no food? Did he party hard and blow all his money before going on the boat trip while the other two saved their money to buy extra food so that they could be well prepared? Once again this becomes a moral hazard problem. The responsible end up subsidizing the irresponsible, skewing incentives. Perhaps the next time these three go on a boat trip 2 of them expect the others to pick up the slack. Then maybe they all starve and die because the irresponsible made a bad decision and it brings them all down.

Administrator Note: Below comment combined with this one.
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# Guest 2013-01-08 08:02
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+2 # carrytrade 2013-01-08 18:43
This is clearly an article about federal tax revenue, so state taxes do not apply to the discussion.
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+1 # Jon 2013-01-20 10:12
i toss the other two overboard and enjoy myself for 3 days. Unless one is a beautiful woman, then I'll toss one over and share with the beautiful woman....was that the right answer?
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+1 # Q 2013-01-25 10:43
There are 51 days of food. Divide that by three and you get 17 days of food per person. I get the government, through my vote, to get the guy with 48 days food to give me 3 days of food and send 42 days worth to 14 more people after 3 days. That way the food gets to the most people before it all spoils. But we're not talking about food; we're talking about progressive taxes on money, which doesn't spoil unless it's eaten up by inflation and not put to work making more; it's called investing for the future; something the government should consider instead of eating 45 days of food and allowing 3 people 2 days each.

Another answer would be to let the one without food starve for 3 days to understand he should have brought food. Next time he'll remember to bring food. The guy with 48 days has more than he could possibly eat in 3 days but it's his to try. He won't be much help paddling.

Another answer would be for the guy without food to bargain for 3 days food from the guy with 48; perhaps signing a contract that says he'll pay 4 days back and paddle more time. The person with 3 days food should tell fat ass 48 to jettison 42 days because it's excess ballast so all 3 can start paddling equally and with more sincerity because the sharks are lookin' at us kinda funny like.

Of course the best answer is to share equally and eat as little as possible because we're in deep do-do and we don't know for sure whether it's really only 3 days to land. That way we save for a rainy day and 0, 3, and 48 are good for duration. If we make it to land in 3 days, then it's really up to 48 to do whatever he want's with the remaining 42 days; maybe sell it to 14 others and buy fresh food or more seed for the next time they find themselves in need.

Oh yea, and don't get into any boats with people who don't have food until you do.
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+1 # Q 2013-01-25 11:01
I've thought about this boat question some more and probably way too much.
The statement presumes that each boater eats and paddles equally. Otherwise, how could one determine how much food each has and how long it takes to get to shore? That presumption may not be accurate given that all people are not created equally except in the eyes of the law which may not necessarily be on a boat with 3 paddlers.
If we grant that presumption is correct, another, more realistic answer is that the person with 48 days of food will negotiate with the person with no food to receive 4 1/2 days of paddling for 3 days of rations. The person with 48 days of food might also negotiate with the person with 3 days of food to recieve 1 1/2 days more of food for 1 1/2 days more paddling. That person with 48 days of food now has 43 1/2 days of food and it will take 4 1/2 days of two people paddling. That person will then have 39 days of food at the end of the 'trip' and will not have had to paddle one bit. All live but not as 'comfortably' as the person who originally had 48 days of food, obviously, because that person does not have to paddle but does have to protect his ass and protect his 'food'.
In other words, given that all things are equal except the produce, the person with the production makes the golden rules. If you don't like that, then work smarter or harder or both to have 48 days of food.
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-4 # Milt 2013-02-20 16:40
Ughh, sounds like a bunch of Ayn Rand theory .. yuck and ughhh ... Rand was a sociopath and a hypocrite (she lived off of medicare and medicaid at the end of her life). Her ideas are anti-Christian and anti-Humane not to mention juvenile and silly ...
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+3 # Vale 2013-04-03 09:04
So she was old and used medicare? OMG the hypocrisy for paying into the system all those years only to receive a benefit at the end of her life! How dare her! And I don't think that you know what medicaid is.
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