Amazing Financial Facts

This piece from MSN Money has a ton of interesting money-related facts about who earns what in the US and who pays taxes. Here is the information along with some of my comments:

The highest-earning 1% of taxpayers in America make 22.06% of all income reported to the government. That's almost twice the 12.51% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers claim 22% of income earned while 68 million share just 12.5%.

Ok, no surprise here -- the cream of the crop earns a boatload of money. Not a shock at all.

When it comes to taxes paid, an even wider discrepancy shows itself, in reverse. Those earners in the top 1% pay 39.89% of all federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes.

To note, these are only federal income taxes, but still the bottom 50% number is amazing to me. Half the working population pays only 3% of income taxes? That's almost unbelievable. No wonder so many in our country want the government to take over more and more services (like healthcare). If I was paying a sliver and getting full benefits, I'd probably want the same.

In 1986, the top 1% of earners reported 11% of all income and paid 26% of the income taxes; the lower-earning 50% made 17% of the income and paid 6% of the nation's individual income-tax bill.

The rich are getting richer and paying more of the bill. The poor/middle class are making less relatively and paying less in taxes.

An income of $31,988 or more puts you in the top half of taxpayers. Earning a bit more than twice that much -- $64,703 -- places you among the top 25% of all wage earners. You crack the elite top 10% if you earn $108,905 or more. And $388,807 buys top bragging rights: Earn that much or more, and you're among the top 1% of all American earners.

Really? Really? $32k per year puts you in the top half of all taxpayers? Holy cow, I would have guessed it was more like $50k. Now wonder the lower half pays so little in taxes -- they barely make anything. Then again, they get just as many benefits from the government, don't they? So shouldn't they pay the same? It's a difficult set of ideas to balance for sure.

I guess this is the debate we see playing out in front of us in the presidential election -- and why both candidates have a different view of what "middle class" means. The most interesting point to me is that 50% of the people basically pay nothing in federal income taxes, yet they have enough size to elect whoever they like and end up paying even less! That's a scary place to be for any country IMO.

Comments

[Philip]

I still think these numbers are seriously skewed from what they try to make it sound. Think about how many high school kids make a little bit of money, under 10k per year and have to report it. Throw in all the college students and then some retired adults that have to turn in earnings from working at wal-mart. What about stay at home parents that do a little outside work and all the sudden they have to submit a claim for a few thousand dollars. These are all big errors in how these calculations are conveyed.

I have seen these numbers so many places, but it really should be based on full time workers for something like that, not that the government tracks those numbers.

With all that I think your 50k for the median income is probably closer to correct for this group.

The top 1% pay more, because the money that they earn comes partly at the EXPENSE of the bottom 50%.

If the top 1% didn't pay the taxes that they do, the would not enjoy the extreme security of being an American citizen, and would NEVER be able to earn that which places them in that elite number.

[Todd]

I have put myself through school and graduate school. While in school, I removed the welding flex in a machine shop in Brighton, MI. Now, according to this, I am in the top 10% of earners. I must address to to the person who left no name, HOW IS MY EARNING MONEY AT THE EXPENSE OF THE BOTTOM 50%? I busted my butt to improve my situation and I still do to maintain. I love when people make these broad statements about how one persons earnings are at the detriment of another...how is this?

Another whine I hear about is why tax breaks "go to the rich" which is generally a load of...well, you know. Here, I hope this helps explain tax cuts and why they seem to benefit the well off but in reality...don't.

U.S. Tax System Explained in Beer
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
 
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
 
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers,’ he said, ‘I’m going to reduce the cost of your daily beer by $20. ‘Drinks for the ten now cost just $80.The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers?
How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
 
And so the fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).
 
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20,’ declared the sixth man.
He pointed to the tenth man,’ but he got $10! ”Yeah, that’s right,’ exclaimed the fifth man.
‘I only saved a dollar, too.. It’s unfair that he got ten times more than I! ”That’s true!!’ shouted the seventh man.
‘Why should he get $10 back when I got only two?
The wealthy get all the breaks!
”Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!
‘The nine men surrounded the tenth and beat him up. The next night the tenth man ( the richest) didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

[Ryan]

Perfect comment Todd! I love it, and sad...but true. A few of the higher bracket individuals that I know of, well...they don't live here anymore. They own a mansion somewhere else!

This is the scenario that I present:

If you want to live off of the government/my tax money and take in just enough to get by, party every night/ weekend with your friends, your kids wear dirty clothes, you drive an acura that you are in debted to...whatever you want to do...go for it.

Those that are successful and make a good income and learn/know how to handle money, they're more than likely to have an education...will be driving decent, nice vehicles (PLURAL) which they own free and clear, they will have a good sized house, with possibly servants and cooks, a boat, a vacation home, extravagant vacations...all the while compared to a lazy government freeloader who has nothing.

And I'm addressing those that can and do have the opportunity to go out and better themselves!

[Anonymous]

The thinly veiled contempt for the poor on this blog makes the "Christian" blogging on Sunday seem self-serving and preening.

Sao Paolo has lower taxes on the rich. Of course, if you want to go anywhere and not be robbed, you have to go by helicopter. But if that's the type of society you want, you'll have low taxes.

All the tax whining in this country comes from people who know the cost of everything and the value of nothing.

[Paul]

It would be fascinating to see how a national sales tax would work as an alternative to income tax.

[Sarah]

Considering we just had this subject partially hashed out in the comments of another post, with stats given, I can't believe we're getting another round of this. And it would even be okay if it weren't coupled with all the hating on the lower classes, but since it is...

If you believe that just because a certain group of people pay more taxes in total than another group, they are individually paying more taxes proportionally, then let me be blunt: you are literally failing sixth grade math and are in no position to be judging anyone else.

Let me use a simple example:

Say I make $100 million this year. I live in a state with 1,000 other people who make only $10,000 each this year. If all of those people pay 10% taxes on their income, and I pay 1% on my income, then I am paying half the tax burden in the state. (I pay $1 million and all of the others together pay $1 million; the total is $2 million; therefore I carry half the tax burden in the state.) This is true even though the other citizens are paying a higher proportion of their income (and you can bet feeling their individual $1,000 payments a lot more than I am feeling my $1,000,000 payment). Gosh, how burdened I am, paying 1 percent of my income! What leeches those people paying 10% are! They're paying just a "sliver" and getting those full awesome government benefits!

(Note that in this example greater income equality would actually be better for state revenues. Every dollar that goes from the pocket of me, paying 1%, to that of someone paying 10%, represents an additional 9 cents in tax revenue.)

In other words, the "total amount paid" by any individual group is basically irrelevant to concerns of tax fairness, at least at the distribution level, because if one group starts out with more income, then a smaller percentage of its income can be larger than a greater percentage of the income of a group with less income. This is literally the kind of math you learned in sixth grade. It is beyond me why people don't bother to figure this out before raining down judgment on those less fortunate than they are.

As for people under the impression that the rich don't manage to get favorable treatment in the financial system, I can only assume that's voluntary ignorance. (It seems to me it was only a week ago that I was explaining how compensation for hedge funds managers making hundreds of millions to billions of dollars is taxed at a level lower than the marginal tax rates for probably the majority of the largely middle-income readers of this blog.) I won't try to break through someone else's voluntary ignorance, but it's pretty lame to be using it as a weapon against those who are already down.

(And before someone yells "class envy," I myself made enough last year to put me well into the top five percent, though not the top one percent. I can see the benefits trickling in even to someone like me, who's not in a position to take advantage of much of the largesse. It kills me that the wealthy basically prey on (a) the hate, fear, and resentment towards the poor and (b) the financial/systemic ignorance of the lower middle to middle class in this country to keep policies favoring them in place. If you are not in the top ten percent of income in this country, your income was essentially flat when adjusted for inflation over the last, six-year-plus boom, even while you worked more hours and were more productive. Hope you got yours despite the stats, though, because we'll be paying to bail out the mistakes of the hyperwealthy for the next twenty-five years or more...)

[rwh]

Income tax is a small portion of the total tax bill. You left out payroll taxes and sales taxes. The payroll tax masks the overall size of the federal deficit becauses of accounting gimics, by "borrowing" some of the SS "trust fund" to use on general expenditures. Sales taxes fund large portions of state government budgets. Both of these taxes are regressive in nature.

As long as the wealthiest 1% or 5% or 10% continues to grow their income and wealth faster than everyone else it seems rather petty to complain about their overall % of taxes paid.

[Kenny]

Thanks Sarah!

People also fail to acknowledge that the truly rich pay even less. Capital Gains tax is only 15%. The truly rich aren't wage earners. They're investors. Warren Buffet (the richest man in the world) paid 17% of his income in taxes, while the average in his office paid 32% of their income in taxes. He paid less of his income in taxes than his secretary.

http://www.youtube.com/watch?v=Cu5B-2LoC4s

[Jim]

Its not too clear from the article but that last bit about the income thresholds for the different % groups is talking about the taxable Adjusted Gross Income (AGI). Its not gross income. So yes $32k or more is the median line for tax payers. Median household income is around $50k but when you subtract the standard deduction, exemption and some other various credits or deductions that people get then the average adjusted number is $32k.

Jim

[cmadler]

Good points by Sarah. Keep in mind also that the statistics above are only in relation to federal income tax, which is "progressive" (in theory, people at higher incomes pay a higher percentage). Those numbers don't include payroll tax (regressive, because of the cutoff), sales tax (much debated, but probably regressive), etc. When you add that in, the tax system is more tilted in favor of high earners.

[Chris]

It comes down to the fact that money can work harder for you than any job you can ever ever hold or invent. That is why the top 1% have done so fantastically well and the lower 99% have not. And really, it is the top 1% of that 1% who skew the numbers so high. Billions make more billions really easily.

But saying we are in a "scary place" because the bottom 99% might vote for someone who thinks that focusing on their economic well being ahead of the top 1% is just wrong. You are some how badly confusing communist revolution with democracy! The wealthy in America have done so well, and have earned so much for themselves and what has it done? Banking collapse, rising unemployment, inflation, all of this mess. The wealth will not be able to even function as it has when the rest of America slowly lapses in education, job security, heath care, and so on. It creates instability, and long term failure.

"Scary place." Seriously.

[Jim]

The effective tax rates are :

Top 1% = 22.8%
Top 5% = 20.7%
Top 10% = 18.9%
Top 25% = 15.9%
Top 50% = 14%

If you add in the 7.6% paid on the first $100k or so for social security & medicare then it is a lot more balanced:

Effective rates for Income tax plus FICA:
Top 1% = 25%
Top 5% = 25%
Top 10% = 26.5%
Top 25% = 23.5%
Top 50% = 21%

If you then add in the effective tax rates from property taxes, sales taxes and excise taxes that impact the poor more than the rich and it flattens out even further.

Jim

[Emily]

Does anyone forget that percentage wise, those who make under 100Kish a year pay a higher percentage of their income into social security and Medicare than those making 100K +, which everyone is saying will go bankrupt before I see a cent. Additionally, the lower income earners pay a higher proportion of their income in sales tax and property tax. We need to understand that Federal income tax is not the only tax paid.

If those top earners want to avoid giving their money to the federal government, they should give more of it to charity to fund programs privately so the government doesn't need to provide those extra services.

[FMF]

Anon --

You need to read all of what I say. Yes, I'd prefer to have government spend less on everything, but I'd also prefer people giving more so the needs of the poor and less fortunate are covered that way. That's why I talk about giving here so often.

Paul --

Interesting comment. I agree.

Sarah --

Believe me, I understand what you're saying. My main issue is with the underlying assumption -- that some people (whoever they are) should be responsible for footing the bill for the majority of the people (whoever they are). And the people who are paying nothing have as much say in what's going on as the people who pay the way. I'd much rather have a system where we all pay our fairshare based on what we use/the services we need versus on the amount we make. And as far as how to care for the less fortunate in this case, see my thoughts above on giving.

Kenny --

A couple thoughts:

1. That shows just how messed up things can get when the government gets involved -- another reason to limit it's control.

2. I'd say if Buffett used less government services than he should pay less (see above) no matter what he made.

Cmadler --

Good points!

[Kenny]

FMF,

So you think the poor should pay the highest tax rate (as they would likely use the most services)?

I'm sorry, Sarah. You and I agree on many things, but on this one I have to disagree. Your entire premise is built on an assumption that taxes come first over income. Whereas you look at the burden of the taxes on income and say, my look at how relatively small it is for the wealthy, I look at the taxes on income and say, why do we permit any burden at all. The fact of the matter is, unless you plan on standardizing income, there's no way to avoid variability in taxes.

I will never understand the focus on the fact that capital gains tax rates are lower than income tax rates. Yes, they are. For a host of good policy reasons. But everyone seems to look at it and say "ah, but the wealthy benefit disproportionately from that". Why not lower income tax rates to the same level as capital gain tax rates? That removes a HUGE part of the incentive for compensation schemes (many of which distort motives for management) by making earning straight salary income far less of a tax disadvantage.

Oh, but see that would mean having to actually control government spending.

See, this is my problem. The correct starting position for this conversation should be how big of a government should we have. Then figure out correct tax policy based on that. Instead, and especially because we have an income tax, we get into these debates about "fairness'. Well, what I really think would be "fair" is if the government spent less than what it brought in in revenue and behaved like any responsible adult would behave with their budget. That would be really fair and fair to all of us.

Want to really use the tax policy to impact things? Monkey around with the corporate tax rates and not the personal tax rates. Slap a huge marginal tax on businesses who pay any employee more than X a year. That could change behavior. Ah, but we don't want the consequences of that, as much as we talk about it.

The problem with so few people bearing the tax burden is that it precisely creates a large population of people for whom there is no experience of the costs of government. In fact, I'd argue at both ends. The super wealthy don't need to really worry about the tax rates. Which means there is absolutely no check on government growth. Now, I realize many don't see this as a value to care about. But I do, and as much for economic reasons for the country as anything else.

The other problem is that an income tax disaligns the incentives of business and individuals. I can't tell you how many people who support a progressive tax code work pretty dogmatically to get lots of tax breaks for their businesses.

All tax policies are complicated to implement. But at least a consumption or sales tax, properly developed to avoid regressive tendencies provides the benefit of giving people some potential for power on tax matters. Don't spend anything in protest to a change and businesses will quickly join the protest of individuals out of economic survival, instead of today selling us out in the tax code.

The real wealthy people who benefit from tax policy are politicians.

Rather than argue about the shape of taxes I'd rather argue about making the whole tax pie smaller. That's going to be a far bigger boost to all of us than anything else. Prisoner's Dilemma problem as I see it.

[JimL]

Many of the comments on here really show how naive most people are on taxes, revenue impacts, etc. as well as the potential impacts on tax proposals coming up. Secondly, there is a large number of just comments on here that cannot even be backed up by any tangible data.

Just a few random comments:

We have approximately 1/3 of tax filers that pay no Federal tax. With proposal on the table, that is likely to grow to 44%. When you have a decreasing pool of people paying in, guess what will happen in the future (Does social security ring a bell?).

Many low-income earners get enough in tax credits that the offset most, if not all, of the payroll taxes. With upcoming credits, that number will increase. Read this:

http://online.wsj.com/article/SB122385651698727257.html

We have seen time after time that when tax rates are decreased, tax revenues actually go up. Therefore, one can also assume that the opposite can occur when you increase taxes. The whole political environment is not about increasing tax revenue, but to take from one person and giving it to another.

As pointed out before, those with wealth will find ways of sheltering income (moving dollars offshore, etc.) in order to avoid taxes. Increasing rates impact earned income, but not other types of income (that can often be sheltered). If you want to really have impact, switch to a consumption tax with a "prebate" to avoid regression.

Payroll taxes (social security/medicare) and the resulting programs are not "welfare programs". They were set up with the mindset that you pay something in and then get it out later on. There are limits set on how much you can get out of social security and that is why there is a limit as to how much it ultimately pulled out of someone's paycheck. If you change that, then you change the program. Are people really suggesting to change this into another entitlement?

[FMF]

Kenny --

I don't really care about rates. I care about paying for what you receive. For instance, I don't go to the grocery store and pay $10 for a box of cereal because I have a certain level of income. I pay a fair price for a box of cereal because I use a box of cereal. Everyone who uses that same thing (the box of cereal) pays the same amount for it.

Now I realize that that might be a bit extreme/impractical, but the exaggeration illustrates the essence of what I'm saying -- that government services should be paid for on an "as used" basis to some extent. From there, extra amounts to care for the poor, etc. should be funded by personal giving from those who can afford it.

Now you may say that that point of view is "pie in the sky" thinking because most wealthy individuals won't give like they should, and I have to give you that point. It's unfortunate. So practically speaking, government has to intervene because people won't support those less fortunate on their own. But I prefer my scenario -- if only it would work. That's why I advocate both parts of the equation on this blog -- lower taxes and more personal giving. The two go hand in hand for me.

BTW, I also realize that the wealthy benefit from a stable society, so that is an additional valid argument for them paying more in taxes...

[Kenny]

"Many low-income earners get enough in tax credits that the offset most, if not all, of the payroll taxes. With upcoming credits, that number will increase."

Where are all my tax credits? I get 1 tax credit. $1000 for my son. I also take the standard deduction.

I'm not a low-income earner, that's for sure. My family has above average income, but we also live in one of the most expensive cities in the U.S. (Los Angeles).

[Kenny]

I'm all for eliminating goverment 'entitlement programs' if the private sector actually did their part (myself included). I think if everyone who could, donated 10% or more of their money to the poor and needy, we wouldn't need things like Welfare. Unfortanately, that's not the case.

I'd be ok with a progressive consumption/sales tax. I'd have to see the details before I'd agree though. I'd also be ok with a wealth tax (tax on wealth instead of income).

[Todd]

Kenny -

So the purpose of taxes are to punish the wealthy? I mention this because you bring up the 15% capital gains tax. It has been shown, since the tax lowered, revenue increased because the number of transactions increased. So in your view, taxes are not a means of revenue but rather a punishment? A higher capital gains tax sounds nice but only results in people holding assets longer and fewer transactions thus lower revenue.

As for the Buffet comment, one of the offsetting factors of his taxes might be his billions in charity. With all the philanthropic work he and Mr. Gates have done, I am not concerned about taxes as such. They should have their taxes offset since they provide so much for charity. Plus, the money used by their organizations is probably much more efficiently used. I would rather their organizations help people than some government agency.

[Eric]

It kills me how people are just talking about tax COLLECTION, rather than tax SPENDING. Our government (both parties) continues to spend without respect for what is collected. Until we can reign in our politicians by voting out those that push to increase government services (war, social security, child tax credits, business takeovers, etc, etc) we will continue to reactively try and address what is fair in our tax collection process.

If even 1% of the effort spent on discussing what is 'fair' for taxing was put toward focusing on improving our government we would truly return to the great nation that we once were.

And my view? Our system can't be too screwed up, look at what America has accomplished in the past 100 years. So let's take all this effort and put it toward improving our government rather than useless bickering between each other...

[Kenny]

Todd,

I don't think shifting burdens is punishment. How is making the wealthy have a higher burdern considered punishment? If the wealthiest people in America are paying 15% of their income in taxes, and the middle class is paying 25-35% of their income in taxes... how is that fair? Or progressive?

[David]

FMF, it's very simple. I don't have 0.001% of a heart condition per year or 0.0005% of a house fire every month. Instead I pay my taxes and my health insurance and so far I've lucked out. So you're right - your idea of how it might work is extreme and impractical, i.e., a complete theoretical abstraction not founded on the economic realities of the average working adult. I'll tell you what's not an abstraction, though - we can raise taxes on multi-millionaires quite a bit before they have to worry about how they're going to come up with a mortgage payment, medical payment, food for their children, tuition for higher ed, heating oil for the winter, or gas for their car. If you want to talk about fairness, you're going to sound hypocritical until you bring the whole thing into focus - lifestyle, health, and how the system does or doesn't work for everybody. And frankly, I cringe every time you start talking about how taxes aren't fair. You just want to pay less taxes because you think you know how to economize on things you don't need. Well, too bad. You don't need as much government assistance as some folks. Get over it.

[Kenny]

THANK YOU, David!

[FMF]

David --

You're right -- I hate paying for anything I don't need and, in this case, paying over-inflated prices due to so much wasteful spending, bureaucracy, and pork-programs.

[Todd]

"So practically speaking, government has to intervene because people won't support those less fortunate on their own."

This is the point. I surprised that people so strongly disagree with what you call a "socialist" (obama) approach. At the same time you believe in the comment above and that people should voluntarily give. I would suspect (you can say if I’m wrong) that you might think non-profit organizations would do a better job with your money than the government. The bottom line is that they have the same problems with wasting money just like the government.

The idea that the free market will provide for everyone without some level of redistribution is not true. If this was true the gap would not be increasing between the have’s and have not’s in this country. Even with the tax increase on the “wealthy” that still won’t happen. People in other countries will risk their life to get here. As the Anonymous commentor pointed out, if you want a world of high crime then prevent all redistribution.

Having said all that I am a firm believer in personal responsibility and being rewarded for you produce. However, that doesn’t always take care of everyone.

Nonetheless I appreciate the opportunity to debate the issues and respect your opinion and all others. Hopefully we all learn something doing this.

[FMF]

Todd --

"some level of redistribution"

I think this is THE issue we're all debating -- what that level should be. You hit the nail on the head IMO.

[Emily]

Who is to say that "rich" people won't some day become "poor" and need assistance, and that "poor" people wont some day become rich and be paying higher taxes?

[David]

FMF, sorry to be harsh, but you deserved that. A publicly-avowed Christian calling for lower taxes because they think healthcare is some sort of lifestyle perk you have to earn...wow. I wasn't talking about pork barrel and neither were you. And I doubt very highly that simply lowering taxes would get rid of government waste, without a systemic change. What, you think anyone out there seriously wants the government to waste their tax dollars?

[Todd]

FMF-

I am just going off your comment from your previous post which I interpreted (i could be wrong) as you oppose any redistribution.

http://www.freemoneyfinance.com/2008/10/some-things-i-f.html
"My thoughts aren't really Obama specific -- it's the line of thinking that I dislike (taking from one group and giving to the other) -- and he's just the current advocate for it."

Unfortunately I think its necessary. Free market won't take care of everyone.

i have debated this with others and the argument is always that they want less government/less taxes because they want the freedom to do what they want with their money. I understand that. However it translates into either you aren't going to give if you don't want to (meaning no redistribution) or you feel you can do something better with your money than the government can.

If the second part of that means giving to your church and other non-profits I would argue that many of them do as poor of a job (wasteful) with your money as the government does.

[FMF]

David --

I think you're making things up. When did I say anything about healthcare? And, as far as I know, the government doesn't provide healthcare to everyone, does it? So how can I be against something our government is doing when they aren't doing it?

Arguing with me about things I've said is one thing, but making up "what I've said" to suit your purposes is waaaaay out of line.

[JimL]

We already ready have a system where the "rich" are paying for lower income earners. The question is how much more, if anything, should the so called rich be paying.

Once again, I ask the question, how much of ones income should go to taxes, regardless of how much someone makes.

Also, keep in mind that many high income earners are not like Warren Buffet and, therefore, do not have the high level of capital gains or dividend income.

[Sara]

This all makes my head hurt. Can we go back to talking about PERSONAL finance now instead of macroeconomics and tax policies over which we have no direct or immediate control? It's one thing to discuss how to minimize your individual tax burden and how it affects your personal finances, but quite another to get into a political debate over how things theoretically should be.

[FMF]

Sara --

:-)

[Todd]

the alternative is that we all always agree. that would just be wierd. :-)

[Matt H]

Sara,

We shouldn't be talking about government economic policies because we have no control over it? Well, we don't have quite as much control as perhaps we'd like, but we do get to VOTE in a couple weeks.

If your head is hurting, go read something else.

We get to choose between an economic ignoramus and a socialist. Someone who will wander around aimlessly vs. someone who will ran as fast as possible in the wrong direction. Not the most attractive options (they never are), but I won't have a hard time making up my mind.

[FMF]

Matt --

Your summary of the two presidential candidates is funny! (though a bit sad since it's relatively accurate.)

[Sara]

Matt H. -- I didn't say the issues weren't important. It's just that these things are already being discussed to death elsewhere, and I will be sad if FMF, one of my favorite personal finance blogs, becomes yet another political battleground. Besides, it seems like y'all have really already made up your minds, regardless of which side of the fence you fall on :)

[suze]

I'm not particularly worried about taxes with regard to the election because whoever is elected we taxpayers will be paying more. I don't find either Republicans or Democrats to be particularly good stewards of taxpayer money. Republicans have the rep of small government, low taxes, but that hasn't been true since the Reagan years.

McCain, Bush, Obama, Frank -- all of them have supported the Economic Stimulus Act of 2008. Bush, a Republican president, proposed it. Republicans and Democrats are both presiding over the largest market intervention ever and the great part is we have no idea whether or not it will work.

Unfortunately, the public did not have much say in this. We'll just be paying for it for years and I have no faith whatsoever that the money will be wisely spent.

[Matt H]

Sara,

OK, so there are other venues. But what's so hard about skipping a blog post if it doesn't interest you? FMF, correct me if I'm wrong, but as I understand it, keeping this blog as a pristine politics-free zone was never the mission.

Actually, it's one of my favorite places to discuss politics. There are enough readers to be worth the effort to comment, but not so many that you get lost in a stack of 450 drive-by comments from kooks, as happens on a site like Yahoo Finance. You can actually have a coherent debate with intelligent people here.

[Andy]

I thought I had already made up my mind, but this discussion has actually made me aware of some things I hadn't really thought of. It probably isn't so earth shattering that it will change my vote for president, but it makes me understand why things aren't quite as cut and dry as I originally thought. I'm sure the political discussions will subside after the election, but for now I'm all for it.

[JEH]

I may have missed it above, but who creates the jobs in America that benefit everyone? Rich, banks (which money mainly comes from the more wealthy), shareholders and government (most money of which come from the more wealthy). Equity investment and credit (reasonable) is what allows an economy to grow. The wages working people get are because of investments that were made to create companies. Therefore, the more tax the less growth and the less jobs. Now, if it's government that creates the jobs (some of course are necessary), they are taking what could be used in the private sector to grow the economy, but are putting it into things that do not provide a return to allow more economic growth. The more the government gets involved in the market, the more socialist we become, until ultimately everything is government owned and we've become communist. The more socialist a country is, the less power the people have. It's a good scheme for politicians to benefit because they are the main winners. Europe, mostly socialist, is no example to follow, and we've seen how great communism is that even China has had to "regress" to more and more of a free market structure. Redistribution of income does not ultimately help the poor because eventually, as Russian found out, there are only so many resources to go around when an economy cannot grow and has no incentive to. Overall economic growth from a free market with incentives to provide for those who cannot provide for themselves is the key. To punish success and reward idleness creates what we have in our economy today. The free market will work, the government's role is to ensure there are no abuses of the system (which they've done a pitiful job of) and that the public costs (including assisting the needy) are fairly administered. This is wishful thinking with all the special interests and their ability to buy our government leaders. This may sound simplistic, but that is what we need to get to - simple, transparent government and true, beyond reproach statesmen as our leaders that cannot be bought. Unfortunately ego and greed of politicians and apathy on the part of the general population ('when good people do nothing') have caused our government and economy to be what it is now. A free market and a good government will ultimately control the idiots that abuse the current system at the expense of other. Sorry for running on so long.

[J-Bird]

All this has been fascinating to read; I don't have any direct say in your upcoming election (Canadian living in Canada), but wish I did (like much of the rest of the world).

Speaking as a member of a country with universal healthcare, and also as one of the citizens who, thus far, has not had much need to use it (knock on wood), I can say with no hesitation that I personally don't mind paying for it. I don't have a problem that my taxes are higher than they might be if there wasn't universal healthcare, or a welfare net; I've grown up with it, am used to it, and despite living in one of the highest cost-of-living places in North America and earning an entry-level salary, am perfectly able to live life. Sure, it'd be great if I could keep more of the money that is technically part of my salary, but would I trade in the social services we have for the pleasure? Absolutely not. But again, that's me personally.

FMF, your ideal "less tax, more giving" approach is by your own admission not something that seems likely to work as policy, because wealthy people just won't give as much as would be necessary for such a system to run. So what exactly are you suggesting as policy? Do you have a specific and applicable system in mind beyond "I don't like this one"?

[tom]

"Those earners in the top 1% pay 39.89% of all federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes."

That is just absolutely ridiculous to me. Everyone in the US should be thanking the "rich" for paying their "fair share". So basically we are all working hard to earn more money to pay more taxes to pay for more programs we probably won't need or use? Seems like punishing success to me.

I have seen the "christian" comment on this thread as well as others, in which it is suggest that

The bible does talk about giving to those in need. In particular, it discusses two classes to which we are to provide for. This is orphans and widows. The bible is also clear when it states that a man should work and that if a man does not provide for his family, he is worse than an unbeliever.

What is very clear in the bible and also is a topic we cover over and over again on this board is proper stewardship of our resources. I think most of us are tired seeing the government continue to collect more and more money, yet spend it in a very unwise manner with significant waste. As such, would it not be part of a Christian response to question how taxes are both increased and then spent?

[Emily]

Hey Richies, you have to pay taxes no matter how much you don't like it, so stop your wining!

[anna]

@ Tom - the disparity is due from the way this is counted. The percentages here are for the total amount of money in the pool. So even if there were no breaks, and everyone paid the same tax percentage, the values would still be skewed.

This was mentioned before, but to belabor the point:

if you have 6 apples and 4 oranges, then you have 10 pieces of fruit.

if each piece of fruit costs 1 dollar, then the apples contribute 60% of the total cost = 6 dollars out of 10.

But if apples cost $1.3, and oranges cost $0.55, then apples contribute 78% of the total cost:

(6 apples)*$1.3 = $7.8; (4 oranges)*$0.55 = $2.2; and 7.8/10=78%

And the more that apples cost in comparison to oranges, the greater the percentage changes.

Similarly, if you took a tax on the cost of apples and oranges, the total tax would be

(%tax)*(total cost of apples + total cost oranges) = total tax,
like (8%)*($7.8 + $2.2)=$0.80

And the apples contribute the most to that $0.80 =

(8%)( $7.8)= $0.62, and 0.62/0.80 = 78%.

So the disparity in tax paid between top and bottom earners comes in part because of the distance between the incomes. Tax breaks are an issue, but it's mainly the counting methods used, because even at the same tax rate, the high values dominate the total. If there is a big enough gap between high and low, or a lot more in the high population, you'll see these kinds of numbers when this method of counting is used. (There are other ways to count this, FYI.)

This way of counting is a little more meaninful when more context is given -- what do "low" and "high" mean, how many are in each group, and things like that. I mean generally (as the article may have done so.)

They could normalize each income in relation to the total to get a better idea of what each person contributes relative to themselves -- i think someone else could explain that better than I could.

[Justin]

Of course the people with the most income pay the most taxes. Even if income taxes were flat that would still be the same. The more you make, the more you pay in taxes, a percentage of income makes it so.