Tax burden by income level and “Shut up or cut!”


The tax debates always intrigue me, mostly because few of the people who are discussing things have much of a clue about the facts.   You hear all kinds of specious talking points – the most conspicuous from the left is that wealthy don’t pay much tax (they pay most of the taxes as in “most” of the taxes!).   From the right the foolish rant is that we’ll cripple economic development if we tax the rich even more than we currently do.   That’s not at all a reasonable assumption.     Most rich folks have a lot of wiggle room in terms of how much they spend, and the idea that foresaking an extra Rolls Royce will inhibit the global economy is preposterous.    As Warren Buffett reasonably notes, much of the tax burden on the rich is from capital gains taxes which are capped at a fairly modest rate.   He, and other wealthy folks, can pay more.

So, the rich CAN afford to pay more, but _should_ the rich pay more given that they already pay (by far) most of the total tax burden?

The answer in my opinion is simple, and involves both cutting spending and adjusting the incomprehensible tax system.     We should CUT SPENDING to match the revenues we take in, and ADJUST PROGRESSIVE TAX rates slightly to  make sure those with the best ability to pay continue to bear most of the payment burden.

To avoid negative economic “shock waves” from this simple but dramatic solution, we can phase it in over the next decade.    Cutting spending is easy – most of the current spend is easy to adjust downward as we’ve discussed before.   Government is incredibly inefficient in delivering well-being via entitlements and security via defense spending, so we just need to make gradual cuts over the decade until the spend matches the revenue.   Tea Party hypocrites who don’t call for defense cuts need to shut up since it’s impossible to balance a budget without cuts to a massively bloated military budget, as do liberal whiners who think money grows on trees and medicare and social programs are serving taxpayers and beneficiaries effectively.    Millions of recipients – most of whom have contributed only a fraction of their benefits – don’t even need them!    Common sense must prevail, and for that to happen the fringe people who have no interest in compromising their sacred cows should be disavowed.   This is not a time to advocate FOR spending, rather it’s a time to be talking about WHAT are the spending things you LIKE that YOU are going to  CUT?    I’m calling this the  “SHUT UP or CUT! ” approach to balancing the budget.

Table 1. Summary of Federal Individual Income Tax Data, 2008(Updated October 2010)

Number of Returns with Positive AGI AGI ($ millions) Income Taxes Paid ($ millions) Group’s Share of Total AGI Group’s Share of Income Taxes Income Split Point Average Tax Rate
All Taxpayers 139,960,580 8,426,625 1,031,512 100% 100% 12.24%
Top 1% 1,399,606 1,685,472 392,149 20.00% 38.02% $380,354 23.27%
1-5% 5,598,423 1,241,229 213,569 14.73% 20.70% 17.21%
Top 5% 6,998,029 2,926,701 605,718 34.73% 58.72% $159,619 20.70%
5-10% 6,998,029 929,761 115,703 11.03% 11.22% 12.44%
Top 10% 13,996,058 3,856,462 721,421 45.77% 69.94% $113,799 18.71%
10-25% 20,994,087 1,821,717 169,193 21.62% 16.40% 9.29%
Top 25% 34,990,145 5,678,179 890,614 67.38% 86.34% $67,280 15.68%
25-50% 34,990,145 1,673,932 113,025 19.86% 10.96% 6.75%
Top 50% 69,980,290 7,352,111 1,003,639 87.25% 97.30% >$33,048 13.65%
Bottom 50% 69,980,290 1,074,514 27,873 12.75% 2.70% <$33,048 2.59%
Source: Internal Revenue Service