I’m not sure why, but the mantra “Tax the Rich!” has always bothered me. It’s hard to explain. I’m not rich (though I’m not complaining either). Most of my clients aren’t rich. What’s interesting is that even if you took the top 25% of all people ranked by assets, most of them wouldn’t call themselves rich either.
The way I see it, ‘Rich’ is the person who has more money than you. Because of this, the idea that you should tax the rich is quite acceptable…after all; they can’t be talking about you. So when we hear that a particular tax cut helps the rich more than anyone else, we bristle with the unfairness of it.
Once the elections in November are over, we’ll have a new set of folks in Washington trying to figure out who the rich are and how to get money out of them. What is the fair thing to do when it comes to the Federal Income Tax (FIT)?
To dig down into this, I went to the ever-reliable Internet. A site called askquestions.org had a pretty graph that showed the top 400 taxpayers in the country paid only 27% of their income in taxes. All the other taxpayers combined paid 40% of their income.
Shocking? Yes! Until you look more closely at the graph. The differences were due to the way Social Security taxes and State/local taxes were levied. Those two need some big fixes, but I’m looking specifically at FIT. The chart also shows that the top 400 pay a lot more FIT than the rest of us.
I’m not complaining about this…in my opinion they should. The problem is that there is a ‘fact’ in most people’s minds that the richer you are the less you end up paying in FIT. That’s just wrong.
Another ‘truth’ I hear is that the rich aren’t paying their fair share when it comes to income taxes. Is this true?
Moving on to the TaxFoundation.org website, I found that the lowest one-fifth of households ranked by earnings received $8.21 in government spending for every dollar they paid in federal, state, and local taxes. The upper one-fifth (let’s call them ‘rich’) got $0.41.
According to an article by Stephen Moore on American.com, “The top 5 percent pay well over half the income taxes.” On several web sites I found figures of about 40% for the number of US households that pay no income taxes.
Hmmm…I’m hard-pressed to say the rich aren’t paying their fair share.
All of the above is presented to say this: Before you think that you are too heavily burdened in taxes compared to those ‘other’ people, examine the facts. Then we can get past the ‘woe are the masses’ rhetoric about who is paying what.
There are plenty of problems when it comes to taxes and spending. Let’s get the facts right. Then maybe, just maybe, we can get the politicians to do something about the real problems.
This article was published under the title "Which Tax Solution is Fit, Fair?" in the Wichita Falls Times Record News on May 4, 2008.