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.

Tax Issues: Current Vs. Flat/Fair Tax

While we're on the subject, it would be good to explore an alternative tax system that has been floating around for a long time but hasn't gotten a whole lot of traction...until recently. But first, let's look at our current tax system:

Yeah, there's a reason you hate it.

From what I've read, there are two major alternatives being thrown around now, a flat tax and a fair tax. In a nutshell, the flat tax is a set tax rate on income for everyone. So, everyone pays 15% (or whatever the number might be) on their income, whether it's $25,000 or $2.5 million. The fair tax is basically a national sales tax - it's 23% on all goods and services sold.

What are the differences between the two?

For those who would rather read it, the main difference between these plans is where the tax is collected - at the time it is earned, or at the time it is spent. Both of these systems are far more fair than our current progressive system, where the higher income earners are taxed far more heavily than those who earn less. While that system may sound fair -- to those who make very little, that is -- it is inherently unfair, and any objective examination of the subject will support that.

The Heritage Foundation did a thorough examination of the flat tax in 2005 - if you're interested, they've got a load of information on how such a tax would affect families, businesses, individuals, and companies. The bottom line is that, compared to our current system, it is much more fair, pro-growth, and simple. Isn't that what we want?

Regarding the fair tax, here's a good explanation:

I'm not 100% certain, but if I had to choose one today, I'd go with the fair tax. It's simple and fair, and it doesn't penalize success. I really like how it would tax spending rather than income, too. If I make a bundle of money but save a lot of it, I don't think I should have to pay as much as someone who makes the same money and spends it all. That's penalizing my prudence, and I think that sucks. And, a tax on the spending would have the added benefit of catching a bunch of tax dodgers who don't currently pay income taxes (i.e. illegal immigrants, drug dealers, Obama Cabinet members) but who do buy goods and services. But, I'd take either one over our current system in a heartbeat.

An increasing number of nations around the world have adopted some kind of flat/fair tax, and they're doing really well with it. Go here to see more on that.

The key is to translate this momentum into action. Call your Senators and Representative and tell them your thoughts on our current tax system, as well as the flat/fair tax. Watch their votes, and reward the ones who stand up for fiscal responsibility. Vote the rest of them home.

It will not be easy to dig out such an entrenched system as the IRS and our tax system, but if the American people demand it, it is possible to make this change and unleash the American economy.

Wouldn't that be nice for a change?

There's my two cents.


Related reading:
http://www.townhall.com/columnists/NealBoortz/2007/11/27/the_fairtax_--_the_truth?page=full&comments=true

Democrats And Tax Cuts

I know, I know, this is talking about history again -- something that Democrats rarely bother with -- but for the rest of us thinking and intelligent Americans in this country, this should say a lot:

Boy, this Administration just seems like it was telling you what you wanted to hear for two years, doesn't it?

2009:

President Obama's budget chief hinted Wednesday that the president's signature campaign issue -- a middle-class tax cut -- will not likely survive a budget battle with Democrats on Capitol Hill. [...] Director Peter Orszag indicated that, while 98 percent of the budget mark-ups in the House and Senate are on par with the administration's budget blueprint, some campaign trail promises, like middle-class tax cuts, may get left on the cutting room floor.

1993:

Seeking to explain why he is backtracking on a campaign promise to cut taxes for the middle class, President-elect Bill Clinton said Thursday that the plan was never a major theme in his race for the White House.

Mr. Clinton, speaking at a news conference a day after saying he would have to "revisit" his tax-cut plan, said Americans voted for him because of the "big things" he wanted to do.

The middle-class tax cut, he said, was not among them.

The poster at Ace's had it right - the moral of the story is that you NEVER trust a Democrat offering "95% of Americans," or "the middle class" or ANYBODY a "tax cut." Sure, they'll say a lot of things to get your vote, but when they get into office, they no longer remember nor care what they said in the campaign. They simply revert to being liberal tax-and-spend big government Democrats. Any fool could have seen it from a mile away except for those who did not want to see it.

Way to go, Kathleen Parker. Way to go, Chris Buckley. Way to go, David Brooks. Way to go, Peggy Noonan. Way to go, Frum. This is your boy. This is the "change you can believe in." You guys sure had our Scam-Artist-in-Chief nailed from day one, didn't you?

Really?  A Democrat who fails to follow through on his promised tax cuts?  I'm shocked...SHOCKED!!!  I think the last Democrat to actually cut taxes was JKF.  Can anyone name one more recently?  I'd even accept Democrats who consistently vote in favor of tax cuts, even if those cuts failed to be implemented.  Go ahead, find me one.

The truth is this:
1. Democrats know what the American people want - lower taxes
2. Democrats have no problem lying to get elected

Remember that great truthism of American politics:




So, could anyone tell me why people continue to believe these lies?  Oh yeah, I forgot.  It's the Kool-Aid.

There's my two cents.

Who Pays Taxes (And How Much)?

It's that time again! The analysis of the 2006 tax year is in, so I wanted to share the results with you. The Wall Street Journal posted an outstanding article detailing who pays the taxes in this country, and how much of them. This is one of my favorite myths to bust every year, so let's get to it!

Their Fair Share

Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.

The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.

Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive.

We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long.

The most amazing part of this story is the leap in the number of Americans who declared adjusted gross income of more than $1 million from 2003 to 2006. The ranks of U.S. millionaires nearly doubled to 354,000 from 181,000 in a mere three years after the tax cuts.

This is precisely what supply-siders predicted would happen with lower tax rates on capital gains, dividends and income. The economy and earnings would grow faster, which they did; investors would declare more capital gains and companies would pay out more dividends, which they did; the rich would invest less in tax shelters at lower tax rates, so their tax payments would rise, which did happen.

The idea that this has been a giveaway to the rich is a figment of the left's imagination. Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003.

This year, thanks to the credit mess and slower growth, taxes paid by the rich may fall and the deficit will rise. (The nonstimulating tax rebates will also hurt the deficit.) Mr. Obama proposes to close this deficit by raising tax rates on the rich to their highest levels since the late 1970s. The very groups like the Congressional Budget Office and Tax Policy Center that wrongly predicted that the 2003 investment tax cuts would cost about $1 trillion in lost revenue are now saying that repealing those tax cuts would gain similar amounts. We'll wager it'd gain a lot less.

If Mr. Obama does succeed in raising tax rates on the rich, we'd also wager that the rich share of tax payments would fall. The last time tax rates were as high as the Senator wants them -- the Carter years -- the rich paid only 19% of all income taxes, half of the 40% share they pay today. Why? Because they either worked less, earned less, or they found ways to shelter income from taxes so it was never reported to the IRS as income.

The way to soak the rich is with low tax rates, and last week's IRS data provide more powerful validation of that proposition.

And what's the big question that needs to be answered next? That's right - if the rich aren't paying those taxes, who is?

The middle class.

Did you see those numbers in the chart? The 'rich' earn 22% of the total income in this country, but pay 40% of the taxes! The top 5% earn 37% of the total income, but pay a whopping 60% of all taxes! The top 50% (earning more than about $48,000 a year) pay 97% of all taxes! What is the one group that earns far more than its relative tax burden? The poor, with earnings of 12% of the total income, but less than 3% of the total tax burden.

Tax cuts never benefit the 'poor' because they simply don't pay much to begin with. And, similarly, tax cuts always benefit the rich the most because they pay by far the most to begin with.

Don't forget, too, that the Bush tax cuts propelled a huge number of people from the middle class into the 'rich' category.

This is nothing new, though. The 'rich' have been paying more and more of the tax burden in this country for years. Take a look:


So, when people whine about the rich not paying their 'fair share' of taxes, point them to this data. It's a total myth, a fabrication used by politicians (especially on the Left) to apply class warfare for their own benefit.

There's my two cents.

The Rich And Their Taxes

In my personal mission to bust myths about rich people and taxes, here is a great article by Steven Malanga that uses IRS data to show just how much of our taxes are paid by rich people.  I like this article because it puts dollar amounts to many of the percentages that I've often cited (this has been the source of some rather lively comments on previous posts):

One of the most persistent themes in this presidential campaign is that the rich are not only getting richer, but that they are also not paying their fair share of taxes, mostly because of tax cuts that favor the wealthy. We hear this not only from the Democratic candidates, but from the media, and even from some of the rich themselves.

Last week, for instance, the Economic Scene column in The New York Times informed us that our tax code has become more favorable to high income workers--the big winners in the last boom, the column added--and asked rhetorically, "That doesn't make sense, does it?" Meanwhile, Sen. Hillary Clinton has decried "reckless tax cuts for the rich," which she says are adding to the middle class tax burden. Then of course there's high financier Warren Buffett, who declared last year that taxes were too low on the wealthy. To prove it he'd done a survey in his own office and found that his tax rate was below that of many of his employees.

Reading all of this after having filed your taxes, you probably imagine that the rich are doing a nifty job of avoiding theirs, and that it's an overburdened middle class that is mostly supporting America's government -- from the war in Iraq to our many domestic programs. And you'd be wrong. As Internal Revenue Service data demonstrate, the rich are getting wealthier, but they are also paying a steadily increasing share of the federal tax burden. Over 25 years, in fact, the percentage of the federal income tax bill paid by the wealthiest Americans has doubled, even as it has shrunk for all others. We are rapidly becoming a society in which a very few pay the greatest part of the cost of government, and everyone else enjoys the benefits. And many people, from our Democratic presidential candidates to members of Congress, want to make it even more so.

To consider how the landscape has changed, it's worth looking at taxes paid by various income groups over time, via data crunched by the IRS. In 1980, with Jimmy Carter still as president, the top 1 percent of filers, those who reported an adjusted growth income of $80,580 or more, paid 19 percent of all federal income taxes. That was actually less than the total tax share of people collectively in the 11th to 25th percentiles, that is, middle income taxpayers making roughly between $24,000 and $35,000 (in 1980 dollars), and also less than the total share of those earning between $13,000 and $24,000, who represented the 26th to 50th percentiles.

A decade later, despite tax cuts in the 1980s that many critics claimed benefited the rich, our top 1 percent of filers were paying more of the total--25 percent of the country's tax bill--than anyone else. The portion of taxes paid by the top filers continue to grow throughout the 1990s and into the new century, pausing only for recessions, which are generally periods in which the share of taxes paid by the rich falls because their incomes tend to decline the most. By 2005, the most recent year data are available, our top 1 percent of filers were paying nearly 40 percent of the federal income tax bill, while those in the 2nd to 5th percentile paid another 20 percent. Every other group saw its share of the tax bill decline, sometimes substantially. Those taxpayers in the 26th to 50th percentile (that is, with an adjusted gross income roughly between $31,000 and $62,000) paid 11 percent of all federal income taxes, down from 20 percent back in 1980, while those in the 11th to 25th percentiles (earning between $62,000 and $104,000 today), paid 16 percent of the federal tax bill, down from 24 percent in 1980.

How can all of this be true if, to hear Warren Buffett tell his story, it's so easy for the rich to minimize their taxes? Buffett's claim, based on comparing his tax rate to those of people who worked for him, got plenty of publicity, and probably invoked in many people the memory of Leona Helmsley's infamous line, "only the little people pay taxes." Buffett's low tax rate, some people conjectured, was a result of the fact that he earned mostly dividend and capital gains income, and those are now taxed largely at a 15 percent rate.

But Buffett is an exception--one of the super rich. By contrast, most of the wealthy in America today garner their income principally from wages, and thus not only pay more in taxes, but pay taxes at a higher real rate than everyone else--Warren Buffett aside. While taxpayers in every bracket do what they can to minimize their taxes, in 2005, the top 1 percent of filers paid 23 percent of their adjusted gross income in income taxes. Those earning between $62,000 and $104,000--certainly part of the middle class that Hillary Clinton says is bearing a bigger burden because of tax cuts for the wealthy--paid an average tax rate of 9 percent. The tax rate of those with incomes between $31,000 and $62,000 was under 7 percent, or less than one third of the tax rate of the rich.

Of course, this is only the federal income tax. We have other taxes in America, including payroll taxes and even corporate taxes--which individuals pay indirectly through taxes on businesses in which we own shares. The Congressional Budget Office, a nonpartisan entity like the IRS, figures all of those into its calculations of tax rates that Americans pay and concludes that the richest 1 percent pay an even higher real tax rate than the IRS figures--31 percent of income.

Yes, these stats do tell us that some people are doing very well in America, including presumably many people who were middle or low-income workers sometime during the past 25 years and have now vaulted into the top 1 percent of earners. But the data also tell us that much of the hyperventilating in our public discussions about the rich not paying a fair share of taxes is disconnected from reality.

Still, given how skewed the discussion has become, it seems almost certain that with a Democratic victory in the presidential race come November, we will see taxes--and the overall share of taxes paid--rise for the wealthy. Are there any dangers in a society where a fleetingly few earners pay such a big share of taxes, and where some folks' notion of fairness means taxing these few ever more? We might consider that question by looking at states with their own progressive state income taxes.

Last week, for instance, a labor union-supported policy group released a study noting that Connecticut now has the largest gap between the rich and the poor in the nation. The local pages of the New York Times dutifully reported on this study and asked, what could be done as a remedy? Raise taxes, the advocates urged, heedless of the fact that in Connecticut the top 5 percent of the state's taxpayers already bear the bulk of the state's income tax burden. The situation is much the same in neighboring New Jersey and in New York where, for instance, the top income bracket represents just 0.4 percent of taxpayers, but they pay one-third of the state's income tax.

Is there a consequence to this? Well, for one thing, it's practically compulsory when talking about the state government in each of these three places to use the adjective "dysfunctional." All three states have seen governors resign in disgrace within the past several years. All three states are rife with corruption, pork barrel spending and government inefficiencies. Hardly a day goes by that the newspapers don't reveal yet another outrage of waste, or mismanagement or thievery.

Yet little changes in the government of these states, much to the amazement of outsiders, who often wonder why voters continue to stand for it. The answer, I tell them, is that a very small percentage of voters are paying for this waste, mismanagement and bloat. The rest pay so little that they don't really care, or they benefit from bloated government, either through jobs in the oversized public sectors, or as users of services.

This is what you get when the few support the many--the direction the federal government is now heading. You get Connecticut, New York or (God help us) New Jersey.

So, which myths are busted by the data in this article?
1. The rich don't pay their fair share of taxes. --- Actually, the rich pay far more of the overall tax revenue than anyone else.
2. Warren Buffet pays less than his secretary.  --- That's because we are taxed on income, not wealth (or assets).
3. The rich have been getting richer, and the poor have been getting poorer.  --- Actually, many in the lower- and middle-class have risen in relative wealth, and are now the 'rich'.

Malanga's conclusion is short, sweet, and dead-on: over-taxation is not only a magnet for corruption and mis-management, but it causes a massive shift in mindset, with the voting masses pay such a small part of the tax burden (or benefiting from subsidized services) that they really don't care what the tax rate is.  Thus, a few people end up paying disproportionately high taxes, and have no way to vote themselves out of the box they're in precisely because they are so few.

Think about this one before you vote for Hillary or Obama, who have entered into a bidding war to see who can raise your taxes the most.

There's my two cents.

Taxes And Tax Cuts

This is excellent, check it out (hat tip Kirsten B.):

Posted February 8th, 2008 by Sacramento_Jeff

This may be the single best explanation of how the tax system works in the US, and the problems with those that demagogue it.

Bar Stool Economics

Suppose that every day ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. He said, "Since you are all such good customers, I'm going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80."

 

The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men -- the paying customers? How could they divide the $20 windfall so that everyone would get his "fair share"? They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay! And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before, and the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!"

"Yeah, that's right,' exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!!"shouted the seventh man. "Why should he get $10 back when I got only $2 ? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Author unknown

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

Pretty easy to understand now, huh?  I blogged about the ratio of income to taxes paid months ago (here and here), and this fun little example puts that information into real world terms perfectly.  So, now that you understand how tax cuts affect people of all income brackets, how do you feel about tax cuts for the 'rich'?

There's my two cents.

Tax Myths Debunked By Harvard Professor

Harvard Economics professor Greg Mankiw posts a comparison of taxes paid in 2005 with taxes paid in 1979:

The first number below is for 2005, the most recent year available. For comparison, I computed, and present in parentheses below, the average effective tax rate from 1979 to 2005, the time span covered in the report.

All households: 20.5 (21.6)

Lowest quintile: 4.3 (7.2)
Second quintile: 9.9 (13.2)
Middle quintile: 14.2 (17.1)
Fourth quintile: 17.4 (20.1)
Highest quintile: 25.5 (26.1)

Top 10 percent: 27.4 ( 27.6)
Top 5 percent: 28.9 (29.0)
Top 1 percent: 31.2 (31.7)

Notice that all groups are paying lower tax rates than the historical average. But in contrast to some popular perceptions, the change is not concentrated among the upper income groups. In fact, the opposite is true.

So, the statement that 'the rich don't pay taxes' is total myth, as is the statement that 'tax cuts only benefit the rich'.

There's my two cents.

Dems Admit Tax Scheme Was Wrong

The most recent tax battle is over, and Bush won again. This is something that hits everyone's pocketbook, so I want to dig into it a bit. Follow along with me.

First, let's address the Alternative Minimum Tax. When the AMT was first implemented around 40 years ago, it was intended to affect only the super-wealthy (at the time, only about 200 families in the whole United States) by establishing an alternative minimum tax amount that everyone had to pay even if they were able to shelter most of their income from taxation.

In their infinite (lack of) wisdom, Congress failed to account for inflation, so as time went on and as more Americans became more wealthy, the AMT started hitting more Americans because the AMT didn't grow with the income of American families. Congress let it go because it meant more money for them to throw around, and money means power. It was slimy, but that's Congress for you. Anyway, as of 2006, there would be 23 million families that would be paying the AMT, some earning as low as $50,000 per year! Basically, it was an outdated tax that was screwing middle-class America right alongside the rich (except the rich could afford to pay it easily, even if they didn't like it).

Everyone knew the AMT was unfair and outdated, so everyone knew it needed to be scrapped, or at the very least, fixed. The catch was that by eliminating the AMT, the government would take in about $50 billion less each year. The Democrats, of course, just can't stand watching income remain in your pocket (where it belongs), so they had pledged to recover the 'lost' $50 billion by adding new taxes.

Republicans in the Senate, led by a staunch Bush administration, stood firm against it, and the Senate passed a bill (88-5) last week that temporarily fixed the AMT (at least for the current year) without recovering the 'lost' money. The key here is that passing this bill signals that the tax platform that Democrat leaders in Congress have been pushing for years (called 'Pay-go', or pay-as-you-go) was scrapped, essentially an admission that it wasn't actually good for America. Incidentally, neither Hillary Clinton nor Barack Obama voted on this bill, so that means they can still take both sides of the issue.

Anyway, it's good to see the Republicans finally starting to stand up for fiscal responsibility - they had kind of fallen off that map over the past few years, and the explosion of government was the result. If at least one party is acting responsibly, that is great news for the American taxpayer.

So, that's the political aspect of this...now, how does it affect you? Well, if you're anywhere on the upper side of the middle class (or if you're striving to get there), you could have been hit by the AMT. Of those 23 million people paying it, the average amount was $2,000. That's right - an extra $2,000 in taxes, simply because Congress is greedy!

This is why these things matter, people! If you don't pay attention, you will get fleeced over and over and over again. The key thing to remember is which party stood up for you (Republican), and which party fought to take an extra $2,000 out of your pocket (Democrat). The Democrats have pledged to heap tax after tax after tax on YOU if they take the White House in 2008. Do you really want to let that happen? The choice is yours.

There's my two cents.

The Party Of The Rich Is...Democrat

A new study by Michael Franc, vice president of government relations at the Heritage Foundation, found that the majority of the nation's wealthiest congressional jurisdictions were represented by Democrats. Excerpts:

[M]ore than half of the wealthiest households were concentrated in the 18 states where Democrats hold both Senate seats.

"If you take the wealthiest one-third of the 435 congressional districts, we found that the Democrats represent about 58 percent of those jurisdictions," Mr. Franc said.

A key measure of each district's wealth was the number of single-filer taxpayers earning more than $100,000 a year and married couples filing jointly who earn more than $200,000 annually.

Mr. Franc's study also showed that contrary to the Democrats' tendency to define Republicans as the party of the rich, "the vast majority of unabashed conservative House members hail from profoundly middle-income districts."

So, the next time you hear a Democrat talk about how they belong to the 'party of the people' or the party that 'stands for the middle class', just point them to this blog. The numbers don't lie.

There's my two cents.

Great Ready - Here Come The Tax Increases!

One News Now reports on a little-publicized issue that will hit the pocketbook of every American: tax increases. Congress will try to hide this, though - in a brazen example of semantic wordplay, they'll say they're not raising taxes at all. Technically, that's true. They'll just allow Bush's 2001 and 2003 tax cuts to expire. If the appropriations bills currently in Congress go through, the American people will end up with a net increase of $100 billion in new spending. What does that mean to you? It means that, on average, each American household will end up paying another $3,026 in taxes every year. Plus, the effects that this increase will have on the economy at large will adversely affect on personal income to the tune of another $502 per year.

Increasing taxes is never good. Your income is yours; you earned it, the government didn't.

Here's how the whole thing works. When taxes are lowered, people have less money taken out of their paychecks. When people have more money, what do they do? They spend it. What does that accomplish? It adds profitability to businesses, allowing them to add jobs, lower costs, expand, invest, or some combination of those. Regardless, it gets pumped back into the economy. This is a cycle that feeds on itself, and the economy roars. According to the Limbaugh Letter (Feb. 2006), the result of Bush's tax cuts led to federal revenues increasing 5.5% in 2004 and 14.5% in 2005. The Heritage Foundation says tax revenues were 18.4% of GDP (gross domestic product) in 2006, which outpaced the 20-, 40-, and 60-year historical averages. Other effects include the federal deficit dropping sharply (almost 26%) through the first five months of 2007, the lowest deficit in four years, and the highest ever one-day individual tax haul. Today, Breitbart.com reports that the federal deficit continues to drop even more than was projected. Clearly, then, the lower the taxes, the better off we all are.

An interesting side note here is the disproportionate amount of taxes paid by the so-called 'rich'. What you really need to understand is that YOU are part of the 'rich'. The bulk of the middle class falls into that category because if you make more than about $50K per year, you're in the upper half. That's right, in 2005, the media household income in the U.S. was $46,326. Based on 2004 tax return data, here's a breakdown of the amount of taxes paid by each segment of American taxpayers:

- the top 1% of wage earners paid 37% of all taxes
- the top 5% of wage earners paid 57% of all taxes
- the top 10% of wage earners paid 68% of all taxes
- the top 50% of wage earners paid 97% of all taxes
- the bottom 50% of wage earners paid only 3% of all taxes

Congratulations, you 'rich' person! Now pay up.

So, when you hear members of Congress talking about tax cuts for the 'rich', there are two factors at play. First, what's the point of increasing taxes on the lower tax bracket? They only pay a tiny percentage of the overall taxes in any given year, so it would be political suicide and it would accomplish nothing. Second, the 'rich' are already paying the lion's share (a whopping 97%!) of taxes, so why shouldn't they be the ones to get the tax break?

Now that we've established who those mysterious rich people are, be aware: essentially every Democrat proposal by essentially every Democrat presidential candidate relies on higher taxes on the 'rich'. Barack Obama wants to raise taxes to fund universal health care. So does John Edwards. Chris Dodd wants new taxes on small businesses. Hillary Clinton has a track record of raising taxes in New York.

When you hear them talk about raising taxes on the 'rich', just remember that almost certainly includes YOU.

I bet you didn't know you were 'rich', did you? Don't worry, you'll be a lot less rich if these tax cuts expire and the Democrats get their way - the government will be happy to take more of your money away from you.

There's my two cents.