By Travis H. Brown |
Although relatively straightforward to analyze, the issue of whether the rich pay their fair share in taxes has become mired in confusion. Much of the confusion stems from two facts which everyone acknowledges: First, the rich pay a (somewhat) larger share of total taxes than any other group of income earners; and second, they pay more proportionally on the federal level—but only on the federal level—than other groups. Despite these two facts, the overwhelming weight of evidence strongly suggests that, at this time, the rich do not pay their fair share and should pay more.
For simplicity sake, it is useful to define the rich as persons making $1 million a year or more. This designation corresponds to the top 1 percent of U.S. taxpayers. So the issue can be framed as whether the top 1 percent pay their fair share in relation to the remaining 99 percent.
While there are a number of ways to assess the incidence of taxes in the United States, the soundest analytical approach is to determine the tax burden as a percentage of income on the average person in the top 1 percent and compare it with the tax burden of persons in other income groups, taking into account, at the same time, the difference in income between each income group. The reason that it is necessary to compare both tax rates and income differences is that persons paying taxes at higher rates may make disproportionally more in income so that their relative tax burden is less than persons in other income groups—even though they pay proportionally more in taxes. This type of analysis is known as an analysis of the relative burden of taxes.
The following two charts indicate beyond a shadow of a doubt that the top 1 percent pay similar shares of their income as taxpayers in all other income groups as a percentage of total income (Chart I) and that their effective tax rate was not dramatically higher than most other income groups, particularly relative to middle class income groups (Chart II).
Chart I shows that, in 2009, the top 1 percent paid approximately the same share in all taxes as they earned in income (as percentage of total revenue) (22 percent of income in taxes; 20 percent of total income of all income earners). The same is true for each of the other major income groups reflected in IRS figures.
Chart II shows that in 2009, the top 1 percent paid almost the same rate in taxes (federal, state, and local) as most of the other income groups. Only the lowest groups paid significantly lower tax rates than the top 1 percent.
Thus, without even taking into account the income differences between income groups, all income groups pay about the same share in taxes as they earn as a percentage of total income including the top 1 percent and pay substantially the same tax rates. Because of the differences in income between the top 1 percent and the 99 percent which show that the affluent in the United States make disproportionately more (e.g., the top 10 percent makes 3,000 percent more than the remaining 90 percent and the top 1 percent makes 1,500 percent more than the rest of the 99 percent), these figures are truly astonishing. They are overwhelming evidence that the relative tax burden falls disproportionately on income groups below the top 1 percent and that the tax incidence of all taxes (federal, state, and local) on the 1 percent is unfairly skewed in their favor. Case Closed.
The same conclusion applies to the federal income tax by itself, even though it is more progressive in nature and involves higher tax rates on the top 1 percent than on other income groups.
About Dan Berger Member of Patriotic Millionaires for Fiscal Strength.
Jason Fichtner Senior Research Fellow at George Mason University's Mercatus Center
Kelly Phillips Erb Author of Taxgirl Blog