“Tax and spend liberals vs. Borrow and Spend Conservatives”
“Class warfare vs. the Rich Get Richer”
“The Wealthy Pay almost all Federal taxes”
You’ve heard them all before and then some. Ideology spin makes it difficult to have a reasoned policy discussion. Here are some examples and an explanation:
- “Obama’s proposal to increase the top marginal tax rate on the wealthy proves that he is a socialist”. The reality – The president’s proposal would return the top rate to the same level as they were during the 1990’s when Clinton was president and the republicans controlled both houses of congress. In fact that rate was historically low compared to top rates of 90 and 70% respectively when Eisenhower and Nixon were presidents, see below figure.
- Republicans claim that a progressive tax structure (i.e. higher incomes taxed at higher rates) is “Class warfare” between the wealthy and the rest of the America. The reality is that over the last 40 years the tax structure and compensation to top income earners such as bankers and CEO’s has been changed dramatically in their favor. The wealthiest 1% of Americans has seen their share of total income grow from almost 9 to almost 24% since 1976. The bottom 20% of income earners share of income have remained stagnant at about 3 to 4%, while the working/middle class has suffered at the expense of rich. Call it what you may but the war has already been won to the detriment of the working/middle class, as shown in below figure showing that the top 5% controls more than 70% of financial wealth. As a result the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana. C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001, see below figure. Class warfare yes but the middle class has lost the war.
- When is a tax not a tax? Depends on who is asking/answering the question. Many conservative lobbyists like to say that 40% of Americans pay no income tax. Although this is factually true, as shown in the above figure payroll taxes now account for about the same portion of federal revenues as does income tax, each are approximately 40% of total federal revenue. By definition a payroll tax, taxes only salary; it does not tax capital gains, bond interest, etc. In addition social security, which is taxed at 6.2%, is capped at $106,000 per year. As result working poor and the middle class pay the bulk of all federal payroll taxes. And payroll taxes amount to 40% of federal revenues, see below figure, also commonly called taxes!. The working poor pay 6.2% for each dollar they earn. The wealthy only pay a small fraction of their income towards payroll taxes. Someone who earns a million dollars a year pays less than 1% towards entitlement programs. So who should be entitled to these programs, the people who pay for them? Who actually pays no taxes? Probably no one over the age of 18 who is not homeless or someone who has otherwise dropped out of the economy. Who should benefit from entitlement programs? Those who pay into it, of course; i.e. the working poor and the middle class.