Our President seems to think that millionaires are getting away with paying too little in taxes. Maybe, but he is presenting an inaccurate picture. We’ve heard it all before. The rich are not paying their fair share. The unfortunate middle class are paying more than the wealthy. Bosses are taxed at a lower rate than their secretaries. Democrats love to say those things. It makes them popular and foments the envy and resentment that keeps them in power.
Except, it’s not true.
Let’s ignore the fact that almost half of all income earners in America pay no federal income tax. Some people even get more “credits” than they have withheld from their paychecks, so that the federal government is giving them money throught the tax system. Let’s also ignore the fact that Warren Buffet, whom the President mentioned in his speech, owns an investment firm, Berkshire Hathaway, that is behind in paying its taxes. And let’s ignore the fact that the Treasury Department accepts donations, and Warren Buffet could send them an extra billion or two anytime he wishes.
Let’s just focus on the fact that what the President said is just not true–at least not on average. I have seen various figures–from the IRS and from the Tax Policy Center, indicating that on average the people making $1 million a year pay income tax at a rate of about 18%-29%. The middle-class folks that Obama mentioned in his speech pay at a rate of about 15%. So, if Warren Buffet pays at a higher rate than his “secretary,” then either he is a statsitical outlier or his “secretary” is or both. (Buffet doesn’t actually have a secretary, per se, but has several administrative assistants who, according to one article that I read, a bit annoyed at the attention they are getting thanks to the President’s speech.)
According to the Congressional Budget Office, the effective tax rates of all taxes paid (not just federal income tax), break down this way:
- Bottom Quintile: 4.3%
- Second Quintile: 10.2%
- Third (Middle) Quintile: 14.2%
- Fourth Quntile: 17.6%
- Top Quintile: 25.8%
So, the rich are paying taxes, and on average, they are paying at a higher rate than the poor and middle class. Much higher. Already.
Certain individuals may be paying less. After all, both Republicans and Democrats in Congress have given them numerous loopholes, exemptions, and shelters. It is not a fair system, because it favors some and disfavors others. The Democrats cannot create those loopholes, or help create them, and then complain when people take advantage of them.
In trying to get some data, I was amazed that there are no hard numbers. There should be. It should be clear how much a $1 million earner pays in taxes, because he, in a just system, would pay exactly what every other $1 million earner pays. It would be a set percentage for everyone–at least for everyone in that same bracket.
One question that I hope everyone asks is this: if millionaires are paying so little in taxes, then where is all that revenue coming from? Is it really the folks making $50,000 a year who are coughing up the billions of dollars of tax income that the government takes in? That’s mathematically impossible. Those who envy the wealthiest 10% should remember that they are footing most of the bill for everyone else.
The President might have had the capital gains tax in mind when he talked about millionaires paying at a lower rate than their secretaries. It’s true that the rate for the capital gains tax is low–15%, but it is misleading to write that without also mentioning that it is a tax on money that was already taxed–at a corporate tax rate. Some people, me included, think that capital gains should not be taxed at all for that reason. (Same with inheritance taxes, but that is another matter.)
You might think that millionaires should pay more in taxes. Fine. But you can’t say that it’s because they pay at a lower rate than middle class people. You should simply say that the rate that they currently pay is not high enough in your view.
I had one more thought on the President’s remarks. His observation cuts both ways. If secretaries are subject to a higher tax rate than millionaires, then lower their tax rate. That’s another way to fix the problem. Raising taxes is not the only possible solution to every problem.