Most people pay hardly any taxes to the federal government. In fact, half the adult population (50%) only pays around 4% of the total federal tax burden. The other half pays the other 96%. Sadly, most of those taxes are poorly used. The works of government that affect you on a day to day basis are handled by the state. My state income taxes (here in Michigan) is a flat 4% of income (not counting sales tax and property taxes).
Here's a chart of what you pay on a state by state basis: http://www.taxadmin.org/fta/rate/ind_inc.html
Federal Taxes are excessive
It is important to differentiate the state from the federal government. Most politicians running for the senate or house of representatives (or President) count on Americans being ignorant of who pays for what. So here's the truth: The basic services that most Americans consider the job of the government: police, roads, schools, fire departments, etc. are handled by state or local governments -- not the federal government. Remember that next time some politician tries to talk about how we need higher federal taxes in order to pay for "better" education.
For married people (which I am) the federal tax rate looks like this:
|
Taxable Income |
|
Tax |
Up to $12,000 |
|
10% of the taxable income |
$12,000 to $46,700 |
|
$1,200 plus 15% of the excess over $12,000 |
$46,700 to $112,850 |
|
$6,405 plus 27% of the excess over $46,700 |
$112,850 to $171,950 |
|
$24,265.50 plus 30% of the excess over $112,850 |
$171,950 to $307,050 |
|
$41,995.50 plus 35% of the excess over $171,950 |
Over $307,050 |
|
$89,280.50 plus 38.6% of the excess over $307,050 | |
So let's say you're a married couple, household income of $50,000. You're going to be paying up to $6,900 in taxes. Of course, that assumes you have no deductions. Throw in some kids and other deductions and that $6,900 largely disappears.
Let's say, however, you make $350,000. That's 7 times as much in income. I think most people would consider it fair that they pay 7 times as much in taxes right? Of course, how many people think that they should pay 7 times as much for their phone? Or their cable bill? Or electricity? Probably not as many. Yet, does this family get any additional federal services? No. But guess what? They don't pay 7 times as much in taxes for making 7 times as much in income. No, they pay 14 times as much in taxes! That's right, on $350,000 of income they'd pay $96,000 in federal taxes.
Now, some people will say "Yea, but those rich people have all kinds of deductions." No, they don't. And as we shall see later, for all the claims of "the rich" finding "loopholes", they sure aren't doing a good job because people who make $350,000 or more are paying nearly all the federal taxes.
Federal Taxes: Not much bang for the buck
But you might say, "Well, the federal government doe a lot of things that helps everyone and the wealthy should pay more, after all, they can afford it." In fact, let's say you take the view Calor does. That the wealthy benefit disproportionately from the infrastructure of the United States and therefore should pay disproportionately. The argument goes: If Bill Gates was born in Somalia he'd be just another starveling. What makes Bill Gates Bill Gates is that he happened to be born in the United States where an educated work force, a strong and uncorrupted judicial and legal system protects businesses, and a good transportation and logistical system helps make it possible to bring products to market in over an entire continent.
Okay, let's say we accept that premise. That roads, education, a society that is based on rule of law, okay, let's go with that. Unfortunately, that's not where your federal tax dollars go. They don't go to helping create a good criminal justice system or better roads or researching new technologies. No, they mostly go from you to some other individual. Here's a pie chart of where your tax dollars go.
Look closely at this. Specifically: Social Security + Medicaid + Welfare + Medicare = > 50% of the federal spending. Half of that federal taxes go from you to go to someone else. All arguments over social justice and compassion aside, how exactly do these programs create opportunity? What exactly is the justification for spending money on these things from a governmental point of view? People like Michael Moore and Al Franken argue that those people buy things which in turn helps the economy and that "rich" people just waste it on fancy food and foreign cars. There's a technical term for people like Michael Moore and Al Franken, we call them "Dumb people". In the real world, most people who generate wealth do so because they are effective at utilizing capital. Blowing a significant portion of your capital on luxury items is not very effective. What these people do is take that capital and invest into things that will generate even more wealth which helps everyone. I am not suggesting that taxes are universally bad. I am saying that income redistribution is bad because it is a less efficient use of capital. I certainly favor state programs that ensure that our citizens aren't starving or freezing out in the streets. But that's not where this money is going. In fact, programs that help ensure poor Americans don't go hungry are handled by (wait for it) THE STATES.
The original point of having the federal government was to "provide for a common defense, promote (not provide) the general welfare". Those things only use up a small percentage of the budget. 15% on defense, 2% on veterans benefits, 3% on natural resources, 3% on education and 8% on Misc. Now, that 8% isn't all good stuff. That's where pork barrel programs fall into. You always hear about "corporate welfare". Well, that would fall into there somewhere. But now you can see what a dishonest charge that is. It's hard to take people who cry "corporate welfare" seriously when that entire part of the budget falls under "Misc." and is only 8% while over half the budget is spent on real live welfare.
Even if you're one of the people who believe Social Security and Medicare are things "we pay into and thus should get something out", that still leaves 15% (Welfare and Medicaid) that are just pure give-aways. Or put another way, it's charity. Which is ironic because the people who are most militant about increasing welfare are the same people who seem to detest the primary providers of charity historically - religious organizations. Rather than allow concerned volunteers to help their fellow man, we instead pay far away bureaucrats to administer money confiscated from the citizenry. But I digress.
Kleptocracy
The problem with income redistribution is that it opens a Pandora's box that can never be closed. Once you have convinced society of the need to take money from "the rich" to give to others you slide down a slippery slope. Over time, power of "democracy" comes in and the majority vote in leaders who increasingly take from the economic producers of society to hand over to everyone else. We already see that today:
This data is from: http://www.taxfoundation.org/prtopincometable.html
| Total Income Tax Shares (percentage of federal income tax collections paid by each group) |
|
Total |
Top 1% |
Top 5% |
Top 10% |
Top 25% |
Top 50% |
| 1980 |
100.00% |
19.05% |
36.84% |
49.28% |
73.02% |
92.95% |
| 1981 |
100.00% |
17.58% |
35.06% |
47.96% |
72.29% |
92.55% |
| 1982 |
100.00% |
19.03% |
36.13% |
48.59% |
72.50% |
92.65% |
| 1983 |
100.00% |
20.32% |
37.26% |
49.71% |
73.10% |
92.83% |
| 1984 |
100.00% |
21.12% |
37.98% |
50.56% |
73.49% |
92.65% |
| 1985 |
100.00% |
21.81% |
38.78% |
51.46% |
74.06% |
92.83% |
| 1986 |
100.00% |
25.75% |
42.57% |
54.69% |
76.02% |
93.54% |
| 1987 |
100.00% |
24.81% |
43.26% |
55.61% |
76.92% |
93.93% |
| 1988 |
100.00% |
27.58% |
45.62% |
57.28% |
77.84% |
94.28% |
| 1989 |
100.00% |
25.24% |
43.94% |
55.78% |
77.22% |
94.17% |
| 1990 |
100.00% |
25.13% |
43.64% |
55.36% |
77.02% |
94.19% |
| 1991 |
100.00% |
24.82% |
43.38% |
55.82% |
77.29% |
94.52% |
| 1992 |
100.00% |
27.54% |
45.88% |
58.01% |
78.48% |
94.94% |
| 1993 |
100.00% |
29.01% |
47.36% |
59.24% |
79.27% |
95.19% |
| 1994 |
100.00% |
28.86% |
47.52% |
59.45% |
79.55% |
95.23% |
| 1995 |
100.00% |
30.26% |
48.91% |
60.75% |
80.36% |
95.39% |
| 1996 |
100.00% |
32.31% |
50.97% |
62.51% |
81.32% |
95.68% |
| 1997 |
100.00% |
33.17% |
51.87% |
63.20% |
81.67% |
95.72% |
| 1998 |
100.00% |
34.75% |
53.84% |
65.04% |
82.69% |
95.79% |
| 1999 |
100.00% |
36.18% |
55.45% |
66.45% |
83.54% |
96.00% |
| 2000 |
100.00% |
37.42% |
56.47% |
67.33% |
84.01% |
96.09% |
| 2001 |
100.00% |
33.89% |
53.25% |
64.89% |
82.90% |
96.03% | |
Take a close look at the bottom row.
The top 1% of income earners in the United States already pay 34% of the federal taxes. The top 5% pay over half the taxes. Think about what that means once you have convinced society that it is ethical to confiscate money from one person to give to another. We're not talking about taxes used to provide education to Americans. Or taxes being used to have a better police force. Or taxes to protect us from foreign enemies. We are talking about taxes taken from one family to be given to another. We are also not talking about taxes being used to feed starving people either. Instead, most of this money is now being used to either provide a life style that resembles "middle class" (without having earned it) or is used to provide health services. Because now, health care is considered a "right". In 1933, living to 65 was very unusual. Now, apparently, living to 80 is considered a right that should be guaranteed by the government or more to the point, guaranteed by the top 5% of income earners.
That is why so many conservatives abhor income redistribution. It has no end in sight. When 25% of the population pays 83% of the taxes, it becomes incredibly tempting for the other 75% of the population to just continually vote in new entitlements. Today we debate whether prescription drugs should be provided for by the "government". I imagine a hundred years ago the idea of taxing people to give other people free medicine would have seemed absurd. At the rate we're going it won't be long until the "government" is required to provide every adult with either a free automobile or annual vacation allowance. Or more to the point, that the 75% of the population that pays only a tiny share of the taxes votes in politicians who promise that the "wealthy will pay their fair share and provide them with free cars and free vacations!".
The usual counter argument is that the rich are "greedy". But who's really being greedy? Every demographic study of "the rich" show that they, on average, work longer hours and take greater risks than the rest of us. Moreover, statistically, those who oppose the welfare state are not much more likely to be rich than those who favor it. It is an issue of principle, not greed. It is not the federal government's job to decide for us what an acceptable economic living standard is. Besides that, it seems to me that those who demand free money are the ones who are being greedy --not the ones who are having to pay it. You can almost imagine the politician saying "These greedy rich folks in their fancy houses and fancy cars think that the rest of us aren't entitled to have a nice car or nice home or a nice vacation! Well they are wrong. It's time for these greedy people to start pulling their own weight and ensuring that the rest of us are entitled to a decent Disney vacation too!"
Honest discussions about taxes rarely happen because the politicians are always so clever about hiding the truth from the average person. You hear things like "A big tax cut for the wealthy!" or "Bush's rich friends got most of the tax cut." Of course they did because any serious tax cut is going to go to people who...pay taxes. Saying things like "The top 1% are getting 33% of the tax cut!" is like saying "20% of sick days are on a Friday". It's just dishonest politics.
Moreover, what about the people who call for federal tax increases for things like "more money for education". Huh? The states provide nearly all of the education dollars. The federal government only pays something like 10% of the bill for public schools. And talk about inefficient use of capital - send money to Washington to send it back to go across the street? Duh? When people talk about raising taxes, what they really mean is bringing in more money to pay to other people in the hopes of making them dependents so that they'll keep voting for them.
So next time you hear politicians debate about taxes, tax cuts, the debt, and "entitlements", remember these things: (1) Most federal taxes are simply pay offs to other families. (2) One percent of the population pays a third of those taxes already. (3) Beware of entitlements, in a democracy, the majority of people can vote in any entitlement. And when that majority only pays 4% of the total tax burden, such entitlements are not a matter of IF but rather of WHEN.