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Why Soaking The Rich Won't Solve The Deficit

by Alan Greenblatt, April 15, 2010

If you think you're paying too much in taxes, be grateful you're not rich.

It makes sense to tax the highest earners: That's where the money is, and the federal income tax has sought to be progressive -- by giving bigger breaks to low earners -- since it was first imposed nearly a century ago.

But despite all the complaints that the Bush tax cuts disproportionately favored the rich -- which were mostly fair -- the share of federal income taxes paid by the wealthy continues to rise. And heavy reliance on top earners has turned into one of the threats to the nation's fiscal health.

The ever-expanding number of credits and tax breaks for the poor and middle class have translated into a record number of people with modest means paying no net taxes at all. The discrepancy between the large amount of taxes paid by the rich and the lack of taxes paid by people with low incomes is only going to grow, given President Obama's vow not to raise taxes on the middle class.

That might be good politics, and it's arguably a fair way to redistribute wealth. But a Robin Hood tax code will make it increasingly difficult to address mounting deficits, experts warn.

Soaking The Rich

There's a compelling rationale behind Obama's often-repeated promise not to raise taxes on individuals making less than $200,000 or families making less than $250,000. Over the past 30 years, incomes for the bottom 40 percent of the population went up by only 15 percent, after inflation. The top 20 percent, by contrast, saw their incomes rise by 75 percent over the same period.

The top 1 percent did even better. Their incomes tripled. And they get a break on payroll taxes, which top out at $106,800.

So the well-off can clearly afford to pay more in taxes. But how much more?

The top 1 percent of earners took home 23 percent of the nation's adjusted gross income in 2007. That's not bad, but they also paid a huge share of federal income taxes -- just over 40 percent that year, according to the Tax Foundation.

Continues @ NPR.org

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Now, careful in reading that..


they also paid a huge share of federal income taxes -- just over 40 percent that year

That is 40% of the overall income taxes, and NOT 40% of their income.  They often put all other percents in terms of percent of income and insert this one big percent of "income taxes" to make it sound really huge.

I have a question that may be germane here.  What percent of the national INCOME did they make?

I have nothing against big income people making HUGE income. Just do not complain about the concept of "fair tax" "progressive taxation" that is driving the tax system ever since it was founded.

Let's remember that Pres.Bill Clinton left the office leaving behind a budget surplus. Then, the Republican Pres.Bush gave the HIGHER INCOME people a huge tax cut both in income tax and in investment tax relief as well as took the country into an unwarranted war in Iraq.  Defense spending is the second largest budget item annually behind Medicare/Medicaid.