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Wednesday, July 9, 2008

Whose Tax Burden is it Anyway?


On one hand I am all for higher taxes and a more complicated tax code, after all my wife is a CPA. But that doesn't make it right for the country.

Let me run some numbers by you. According to the congressional Joint Economic Committee. in 2006:
  • The top 50% of income earners pay a whopping 96.5% of federal income taxes, while the lower 50% pay just 3.5%.
  • The top 10% (adjusted cross income of about $95,000+) pay 65.8%
  • The top 5% pay 54.4%
  • The top 1% (AGI of $300,000 or more) pay 34.3%
Now Senator Obama says that the rich should pay more Taxes, the interesting thing is by raising the tax rates on higher income families as he proposes, the rich will actually pay LESS taxes. In 1970 when the highest tax rate was 70%, the top 1% shouldered 16.7% of the income tax burden. Look at the numbers above. Now that the highest rate is half that of 1970, the percent of the tax burden for that top group has more than DOUBLED ! How has that happened?.....

Political Diary
July 9, 2008 Reviving Redistributionism


New data from the IRS will be out in a few weeks on who pays how much in taxes. My contacts at the Treasury Department tell me that for the first time in decades, and perhaps ever, the richest 1% of tax filers will have paid more than 40% of the income tax burden. The top 50% will account for 97% of all federal income taxes, while the bottom 50% will have paid just 3%.

But Barack Obama has decided the rich still don't pay enough. He would redistribute the tax burden even more heavily on small business owners and the entrepreneurial class (two-thirds of the tax filers in the highest income tax bracket are small-business owners.) The nonpartisan Tax Foundation's Scott Hodge has just crunched the numbers on the Obama plan and concludes that "more than $131 billion would be redistributed from the top 1 percent of taxpayers to all other taxpayers."

Sounds fair, no? Only 1.13 million taxpayers, out of some 128 million, would end up paying higher taxes, according to the Obama camp.

But in the real world, who ends up paying a tax is not just the person on whose tax return it falls. History has demonstrated time and again that raising tax rates on the wealthy in the name of "redistribution" leads to so much income shifting, reduced work and investment, and redeployment of money into tax shelters, that the rich usually pay less, not more taxes, at higher rates. The burden of paying for government shifts to others, including some who may not file an income tax return at all – because they no longer have jobs or no longer earn enough to pay income tax.

Economist Glenn Hubbard of Columbia University has shown that in 1970, when the highest tax rate was 70%, the top 1% shouldered 16.7% of the income tax burden. Today the top tax rate is 35% and the same class of taxpayers pays a whopping 39% of the burden. The worst way to "soak the rich," Mr. Hubbard finds, is to raise tax rates.

Somebody needs to give the Obama campaign a refresher on all this. The Tax Foundation's Mr. Hodge wonders: "Can a tax system so focused on redistribution be compatible with economic growth?" Probably not but the Obama brain trust wants to give it a try anyway.

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