Perhaps one of the most common myths (or lies, depending on how you look at at it), is the idea the “rich don’t pay their fair share”. But is this true? Various groups drag out “studies” to prove their point, but are they correct? Instead of using biased “studies” (from any group), why not simply go to the source? The Federal Government published a CBO Paper in August 2004 titled Effective Federal Tax Rates Under Current Law, 2001-2014. On Table 2 (page 18 of the PDF) “Effective Federal Tax Rates” under “Share of Total Federal Tax Liabilities” heading shows some interesting results.
Taxes paid by highest incomes
- The top 1% pay 22.7% of taxes.
- The top 10% pay 50% of taxes.
- The top 20% pay 65.3% of taxes.
- The top 40% pay 84.3% of taxes.
Taxes paid by lowest incomes
- The bottom 20% pay 1.1% of taxes.
- The bottom 40% pay 6.1% of taxes.
NOTE: This data is old, see the end for the April 2014 update with newer data
The bottom 40% pay about 6% of taxes, while the top 40% pay about 85% of taxes — or about 14 times more than their counterparts in the lower brackets. But in light of the constant droning “the rich don’t pay their fair share”, how many expected the distribution reported in the CBO paper? Be honest.
Progressive taxation is not inherently wrong, but taken too far it’s socialist income redistribution, which is legalized theft. Asking one minority group to shoulder the burden almost exclusively is discrimination and unethical. Those blessed financially have an obligation to help others, but when the top 40% pay almost all the taxes, isn’t that enough?
Charity is a foundational principle, and those blessed financially should help those less fortunate. Everyone should pick a favorite charity and contribute to it regularly. Note: if you do plan on beginning charitable donations, be vary careful, some “charities” use the majority of funds (well over half) for administration. Do some research about your chosen organization and be sure your donations are being used for what you intended. As a very general rule, if administration and fundrasing are more that 10-15%, we’d question that organization carefully and thoroughly before sending money.
Do the rich pay enough in taxes?
Everyone has a stake in needs and functions of government, so everyone should pay. Once you’ve removed huge sections of people from paying anything, what incentive do they have to demand controlled spending? None. After that, they’ll always vote for the candidate who gives them the most handouts — after all, they’re not paying for it. Consider the following comment about democracy:
It can only exist until the voters discover that they can vote themselves largess of the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. (This quote has been attributed to both Sir Alex Fraser Tytler and Alexis de Tocqueville.)
So for those who believe the rich don’t pay their “fair share”, how much is enough? If you designed the tax system, who would pay what? With the top 40% shouldering 85% of the burden, how much more would you ask them to pay? And how many in the lower brackets would you exempt? Or do those claiming the rich don’t pay enough really want socialist income redistribution? We’d really like to know.
UPDATE: July 12, 2012
This article has been getting many hits lately as the campaign heats up. When Obama and others talk about paying a “fair share”, they leave that undefined. A new CBO report “found the bottom 20 percent of American earners paid just three-tenths of a percent of the total tax burden, while the richest 20 percent paid 67.9 percent of taxes.”
Thus, since the original report came out, the system has been getting more progressive, with the “rich” paying more.
So for all the people screaming “the rich don’t pay their fair share” — considering they already pay far more than other groups, how much more should the upper income levels pay to be “fair” in your view? And is it acceptable for about half to pay no federal income tax?
UPDATE: March 2014
The CBO web site was changed and the links broken. They should be fixed now.
UPDATE April 2014
Many comments have said things similar to “but the rich make all the money, and don’t pay an equal percentage of taxes.” If you’re in that group, this update is for you.
An article from the TaxFoundation contains federal data for 2010, reporting the following:
- Top 1% earned 18.9% of $$$$, paid 37.4% of taxes.
- Top 5% earned 33.8% of $$$$, paid 59.1% of taxes.
- Bottom 50% earned 11.7% of $$$$, paid 2.4% of taxes.
Other bracket breakdowns are in the link if you’re interested.
Raw IRS Data is available for review as well. Look at the heading “Number of Returns, Shares of AGI and Total Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates” for “SOI Bulletin article—Individual Income Tax Rates and Tax Shares, Table 5″ (file 10in05tr.xls).
The “Adjusted gross income share (percentage)” and “Total income tax share (percentage)” are listed by year, from 2001–2010 for anyone interested.
For 2010, the top 25% earned 67.6% of income, and paid 87.1% of federal income taxes.
That’s the latest data I can find. If anyone has newer Federal data, please leave a comment so the article can be updated.