Who Pays Taxes (And How Much) In 2007...And Pie Vs. Flame

The idea of progressive taxation is one of the worst and most fundamentally unfair policies perpetuated by the liberal Left. Now that the 2007 numbers have been released, we see once again that the idea that 'the rich' don't pay their fair share is obliterated by reality:

The IRS released data today on the distribution of income taxes. It shows that the highest-earning taxpayers shoulder a considerable burden of the federal income tax.

According to the IRS, the top 1 percent of taxpayers paid over 40 percent of all federal income taxes in 2007. That is a higher share than the bottom 95 percent of taxpayers combined! They paid just over 39 percent.

The top 1 percent, those earning over $410,000, consists of 1.4 million taxpayers, while the bottom 95 percent contains 134 million.

In 2000, before the 2001 and 2003 tax cuts that some claim disproportionately benefited the rich, the top 1 percent paid less than 38 percent of income taxes while the bottom 95 paid almost 44 percent. Since the tax cuts, the top 1 percent’s share increased over 2 percentage points while the bottom 95 percent’s share decreased 5 percentage points. Those that argue the tax cuts solely benefited the rich are mistaken.

...the bottom 40% of taxpayers pays no income taxes on average. In fact, they get money from the tax code well above anything they paid in because of refundable credits. And President Obama’s Make Work Pay credit, passed as part of the stimulus, will increase the money redistribute to these non-taxpayers.

If you're a visual person like me, it helps to see the numbers this way:


As you can see, the top 1% of wage earners pays a full 40% of the federal income taxes levied on the American people. The top 5% of wage earners pay almost 2/3 of all federal income taxes (more than the other 95%!), and the top 25% of wage earners pay almost 3/4 of all federal income taxes. Once you hit the 50th percentile wage earners, you've got essentially all federal income taxes paid in full.

Oh, sure, but aren't those all the rich people in the country? They're not nearly as rich as you might think. In fact, chances are very good that it actually includes you. To illustrate this, I whipped up a little summary chart from the IRS data that shows each category of wage earner, the number of tax filers in that category, and where the dollar amount cut-off was for each category:


I think we'd all agree that making $160-410K (or more) a year is a terrific income, though I'd also wager that a great many of those filers are actually small businesses which have extremely high overhead and expenses that eat up a lot of that income. I don't have an exact number, but last fall Americans for Tax Reform stated that "two thirds of small business profits are earned in households making more than $250,000 a year", so it seems obvious that the number is pretty high. And, for those of you wondering if the tax burden rises in step with the income distribution, the answer is no:

The aggregate income distribution is highly concentrated towards the top, with the top 6.37% earning roughly one third of all income, and those with upper-middle incomes control a large, though declining, share of the total earned income.

So, while earning 'roughly one third of all income', they're paying roughly two thirds of all federal income taxes. Only in liberal circles could that be considered 'fair'.

Nevertheless, the thing that strikes me most about these charts is not the top end, but rather how deeply this tax system digs into the pockets of the middle class. To put it into perspective, do you know what the median household income was in 2007?

$50,233.00.

Now, take another look at the income cut-off for the top 50%.

$32,879.00.

The median household income rests almost exactly halfway between the 50th and 25th income cut-offs, so that means it's around the top 37% of wage earners and around 92% of all federal income taxes. In other words, if you're making anywhere near the median household income, you're footing the bill for almost all of the federal income taxes paid in this country.

So, this answers for us the question of who pays taxes, and how much they pay. Is this really a 'fair' system? I report...you decide.

I think this concept of 'fairness' in the context of the economy is understood by pretty much everyone in one of two ways. The first is that it's a zero-sum game, and that the American economic pie never changes size. If one man gets a bigger slice, another man loses some of his.

The other way is that the economy is a group of people, each holding a candle to represent their economic well-being. When more people are added to the group, the flames of existing candles spread to the new candles without taking away anything from anyone else whose candle already has a flame.

See the difference? If you're a pie person, there's a certain logic to income redistribution through a progressive taxation system like what we have here in America. I get that. However, when you push the theory into the real world, we see that the flame analogy is the correct one.

Just one quick example - the Baby Boomers. They're a huge swell of population growth that has moved en masse through American history for the past half century; if the American economy was a zero-sum pie, then those Baby Boomers should have crippled it when they came of age by dividing the pie into a huge number of tiny slices, right? That didn't happen. Instead, we saw that as those Baby Boomers entered the work force, created new ideas and businesses, generated new products and services, and contributed to the American economy, the flames of the economy spread rapidly, leading to the unprecedented prosperity that has put America in a class of its own throughout world history.

We must understand these concepts, and be able to articulate them. They are the key to preventing the disastrous economic policies of the Left, including the progressive taxation system under which we now live.

There's my two cents.