The Rich Aren’t Paying Their Fair Share!!

Politics and Taxes

As the 2020 election approaches, the political rhetoric is heating up.  One of the most common themes from the horde of politicos vying for the Democratic presidential nomination is that the recent Tax Cut and Jobs Act of 2017 was a handout to the wealthy.  In general, a tried and true populist theme has always been that the so-called “rich” aren’t paying their fair share of the income taxes collected in the United States.  One can’t deny that over the past few decades, the income distribution in the U.S. has been tilting in the direction of the highest 10% of earners.   But, has that been caused by the federal income tax system as the campaigners would like you to believe?  Are the higher income earners getting a sweet deal at the expense of the common man?

The Tax Foundation is a non-partisan entity committed to providing facts about the U.S. federal income tax system and the tax burdens borne by our populace.  While data collection lags prevent their information from being completely up-to-the minute, it’s recent enough to provide useful insights into the veracity of the political claims.  Their analysis of data from the IRS reports the following:

  1. In 2016, the top 1% of taxpayers paid 37% of the federal income taxes collected.  This is twelve times the tax burden of the bottom 50% of taxpayers.
  2. In 1986, the bottom 90% of taxpayers shouldered almost 45% of the overall tax burden.  By 2016, this figure had declined to about 31%.  During this same period, the top 10% of taxpayers saw their share of income taxes paid increase from 55% in 1986 to almost 70% in 2016.
  3. The average % tax rate paid by the top 1% of income earners was 27.1% of adjusted gross income in 2016.  The comparable number for the remaining 99% of taxpayers was 11.0%. While 2018 tax year data is still incomplete, it’s projected that the average rate for all taxpayers will fall from 10.3% in 2017 to 9.2% in 2018.  This is due to the tax law changes in the 2017 act which are expected to lower the tax burdens for 80% of taxpayers.
  4. Taxpayers with adjusted gross incomes of $50,000 and lower are projected to have a negative effective tax rate in 2018.  Refundable credits such as the child tax credit and the earned income credit cause these taxpayers to effectively receive a subsidy from the federal government.  It’s not called welfare, but that’s really what it is.
  5. In 1950, 28% of tax filers had zero tax liability for the year which means they received back all federal income taxes withheld from their paychecks.#.  The equivalent number for 2016 was 33.4%.  This figure has varied from a low of 16% in 1969 to a high of 41.7% during the “great recession” of 2009.

#Most of these taxpayers still incur “payroll tax” which is the 7.65% assessment for Social Security and Medicare.  Just the same, these contributions are directed to these programs and not designed to fund other activities of the federal government. It is estimated that refundable credits offset payroll taxes for about 9% of households.

It’s been said that “the politician that robs Peter to pay Paul, can always count on the support of Paul.”  Have these candidates ranting about a “tax system for the wealthy” done the political calculus and determined that this is a winning strategy?   Are they counting on a voting populace that’s ignorant of the facts?  It will be interesting to watch…………………..