On September 14th President Biden Tweeted, “..the wealthy have been getting a free ride at the expense of the middle class for too long. I intend to pass one of the biggest middle class tax cuts ever - paid for by making those at the top pay their fair share.” This, of course, is nothing more than unabashed pandering. It is intended to stoke the flames of class warfare by creating and reinforcing a sense of envy, one of the biggest motivators for achieving the agenda of the left. This all-too-common refrain, “The rich need to pay their fair share,” deserves closer inspection.
What is a “fair share”? Are the wealthy paying theirs? Are you paying yours?
One way to define a “fair share”, free from subjective bias, is a flat tax in which the government takes the same number of pennies out of every dollar earned from every person. A common caveat for that is the creation of a minimal baseline income level, below which there is no tax. It could be said that if someone is not having the same number of pennies taken from each dollar, they are not paying their fair share. This is not what President Biden means.
We have a progressive income tax, which means that as a person earns a greater amount of income, the government will tax that greater income at a higher percentage. As such, those who use “fair share” as their battle cry refer to two things. First, the tax rate on the rich, although higher than the middle class, is not high enough. Second, although the tax rate on the rich is higher, there are loopholes the rich use to lower their taxes below what the middle class pays.
Fortunately, we are able to evaluate those statements with excellent data the IRS has on it’s website, readily available for everyone. Either President Biden’s team is not aware of this data, or they are aware but hope that you aren’t.
There are many important facts in the IRS data. One item is from whom the IRS is receiving their income tax revenue. It turns out that the wealthiest 1% contribute just over 40% of all taxes paid. The top 10% contribute over 71%, and the top 50% contribute just over 97% of all income taxes paid in! Yes, that’s right; the lower one half of wage-earners in the country contributed just under 3% of all income taxes paid. You may think that is good, or you may think it is bad. Either way, it’s pretty difficult to say the wealthy aren’t paying their fair share.
And what about all those crazy loopholes that get the wealthy off the hook from paying taxes? Again, we can simply look to the IRS. The overall average tax rate paid (the percentage the government took from every dollar earned) for the top 1% after all of the deductions, credits and loopholes was 25.4%. Compare that to a 19.9% tax rate for the top 10% of earners, a 14.6% tax rate for the top 50%, and a 3.4% tax rate for the bottom 50% of all income earners. Again, whether you like that system or not, it is impossible to say the wealthy aren’t paying their fair share.
President Biden proposes to increase the top income tax bracket from 37% to 39.6%. I don’t believe he thinks that is the magic number, because it isn’t about arriving at a number. It’s about dividing the American people, be it race, gender or income level.
Nevertheless, let’s play that game.
The wealthy aren’t paying their fair share, they say, and we should increase the tax they are forced to pay. President Biden says he will not increase taxes for anyone making under $400,000 per year. What would happen if we actually doubled the amount of income tax everyone who makes over $400,000 must pay? Well, I hope we would believe they are finally paying their fair share, but more importantly we find it would bring in roughly $700 billion dollars, which pales in comparison to the $8,300 billion dollars that the Fed has “printed” out of thin air.
In other words, punishing the wealthy will not even come close to getting us out of trouble.
When someone says, “The rich need to pay their fair share”, I emphatically agree. We all do, but it would be better if the moral pretense of “fair share” were dropped altogether. It would be much more productive to discuss the implications of various tax policies without such disingenuous platitudes. That would be one step toward civil dialogue in a very divided country.