Wednesday, August 29, 2012

The Rich Don't Pay Enough?

The Rich Don't Pay Enough?
By Walter E. Williams
8/29/2012

If you listen to America's political hacks, mainstream media talking heads and their socialist allies, you can't help but reach the conclusion that the nation's tax burden is borne by the poor and middleclass while the rich get off scot-free.

Stephen Moore, senior economics writer for The Wall Street Journal, and I'm proud to say former GMU economics student, wrote "The U.S. Tax System: Who Really Pays?" in the Manhattan Institute's Issue 2012 (8/12). Let's see whether the rich are paying their "fair" share.

According to IRS 2007 data, the richest 1 percent of Americans earned 22 percent of national personal income but paid 40 percent of all personal income taxes. The top 5 percent earned 37 percent and paid 61 percent of personal income tax. The top 10 percent earned 48 percent and paid 71 percent of all personal income taxes. The bottom 50 percent earned 12 percent of personal income but paid just 3 percent of income tax revenues.

Some argue that these observations are misleading because there are other federal taxes the bottom 50 percenters pay such as Social Security and excise taxes. Moore presents data from the Tax Policy Center, run by the liberal Urban Institute and the Brookings Institution, that takes into account payroll and income taxes paid by different income groups. Because of the earned income tax credit, most of America's poor pay little or nothing. What the Tax Policy Center calls working class pay 3 percent of all federal taxes, middle class 11 percent, upper middle class 19 percent and wealthy 67 percent.

President Obama and the Democratic Party harp about tax fairness. Here's my fairness question to you: What standard of fairness dictates that the top 10 percent of income earners pay 71 percent of the federal income tax burden while 47 percent of Americans pay absolutely nothing?

President Obama and his political allies are fully aware of IRS data that shows who pays what. Their tax demagoguery knowingly exploits American ignorance about taxes. A complicit news media is only happy to assist. We might ask ourselves what's to be said about the decency of people who knowingly mislead the public about taxes. Of course, I might be all wrong, and true tax fairness dictates that the top 10 percent pay all federal income taxes.

Aside from the fairness issue, 47 percent of taxpayers having no federal income tax liability is dangerous for our nation. These people become natural constituents for big-spending, budget-wrecking, debt-creating politicians. After all, if you have no income tax liability, what do you care about either raising or lowering taxes? That might explain why the so-called Bush tax cuts were not more popular. If you're not paying income taxes, why should you be happy about an income tax cut? Instead, you might view tax cuts as a threat to various handout programs that nearly 50 percent of Americans enjoy.

Tax demagoguery is useful for politicians who prey on the politics of envy to get re-elected, but is it good for Americans? We're witnessing the disastrous effects of massive spending in Greece, Italy, Ireland, Portugal and other European countries where a greater number of people live off of government welfare programs than pay taxes. Government debt in Greece is 160 percent of gross domestic product, 120 percent in Italy, 104 in Ireland and 106 in Portugal.

Here's the question for us: Is the U.S. moving toward or away from the troubled EU nations? It turns out that our national debt to GDP ratio in the 1970s was 35 percent; now it's 106 percent of GDP. If you think we're immune from the economic chaos in some of the EU countries, you're whistling Dixie. And when economic chaos comes, whom do you think will be more affected by it: rich people or poor people?
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To read another article by Walter Williams, click here.

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