Taxes on the wealthy ensure they pay most in income taxes


Despite what many think about the yacht-owning set, taxes on the wealthy make up most income tax revenue by volume. Image from Wikimedia Commons.

There’s been a lot of commotion in recent years over taxes on the wealthy, with the assumption that they are obviously shirking their share thanks to loopholes. It isn’t really that simple and in fact is something of a bad assumption to make as the facts don’t support that idea.

Taxes on the wealthy make up most of what is paid

It’s a widely held idea – in fact a misconception – that rich people are avoiding taxes. Entitlement programs are underfunded and so on and so forth, because Congress has been bought off and made loopholes that allow their wealthy “campaign contributors” to keep more of their money than they should. That capital gains taxes are lower than income taxes ensure that to be the case.

Actually, with the capital gains thing, there may be a point there. As to loopholes, there may be something there and Congress being bought off is probably true as well.

However, taxes on the wealthy are where the bulk of tax money comes from. According to CNN, the Tax Foundation found the top 10 percent of income earners were paying 70 percent of all income taxes by volume.

More than they used to

Not only that, but taxes on the wealthy are higher than they have been in some time. The current spread of 70 percent of taxes by volume, which the Congressional Budget Office also found in 2011, according to USA Today – though that’s where the Tax Foundation got their information – is higher than it was in 1986, when the top 10 percent of earners paid 55 percent of taxes by volume.

Since that time, tax brackets have also increased. In 1986, there were two brackets – 15 percent and 28 percent. Today’s seven brackets range from 10 percent to 40 percent at the top. Tax breaks for middle-class and lower-middle class earners are also generous, as credits such as the Earned Income Credit and various credit for parents ensure lower income households pay lower shares. As a result, 47 percent of the population pays next to nothing.

Didn’t somebody say something about 47 percent of the population recently?

Where it falls down of course

That said, that doesn’t necessarily mean all things are equal. Taxes on the wealthy are a bit different; as The Economist points out, income taxes are only applied on the first $110,000 of income, rather than all of it. Likewise, Social Security payrolls taxes are also applied on the first $110,000, so the bulk of that funding comes from deductions from wages. Medicare/Medicaid taxes are not capped, though.

Another consideration is the capital gains tax. Many of the wealthiest of the wealthy receive the bulk of their money through capital gains, which is taxed at only 15 percent.

There is also sales tax to consider. Sales and excise taxes aren’t progressive, as income taxes are, so while a lower income individual might pay next to nothing in income taxes, they will fork over more of their income in sales taxes than a wealthier person might do. According to CNN, Citizens for Tax Justice found in a 2011 study that the top 10 percent of earners pay 30 percent of their income in state, local and federal taxes. Middle-class persons paid 25 percent, nearly the same amount. One-quarter of salary can leave quite a lot for some, but for others it’s can be the difference between scraping by and needing short term loans to stay afloat.



USA Today

The Economist

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