Now that the House and Senate have passed their respective budgets – and assuming a reconciliation of the two is possible to get a final bill for the president to sign – then the major focus in Washington has shifted to tax reform.
There is a vast divide on this issue between conservatives and progressives – nothing new there. But in this case, there is also a vast divide among the American people on the issue of tax cuts. In order to address this latter divide, we need to take a fresh look at who really pays the vast majority of income taxes in this country, and who doesn’t. This is very important.
Some politicians and many in the mainstream media love to exploit public ignorance. Few areas provide as many opportunities for political demagoguery as taxation. Today some politicians argue that the rich must pay their fair share and label the latest proposed changes in tax law as “tax cuts for the rich.”
Let’s look at who pays what when it comes to federal income taxes, with an eye toward attempting to answer this question: Are the rich paying their fair share?
According to the latest IRS data (for 2015), the payment of income taxes was as follows.
The top 1% of income earners, those having an adjusted annual gross income of $480,930 or higher, paid just over 39% of federal income taxes. That means about 892,000 Americans (less than one million) were stuck with paying almost 40% of all federal income taxes.
The top 5% of income earners, those having an adjusted annual gross income of $195,778 or higher, paid almost 60% of federal income taxes.
The top 10% of income earners, those having an adjusted gross income over $138,031, paid about 70.6% of federal income taxes. About 1.7 million Americans, less than 1% of our population, paid over 70% of federal income taxes. Is that fair, or do you think they should pay more? But the fairness question goes further.
The bottom 50% of income earners, those having an adjusted gross income of $39,275 or less, paid only 2.83% of federal income taxes. Is that fair, or do you think they should pay less?
Of this group, 37 million tax filers had no tax obligation at all for 2015. The Tax Policy Center estimates that 45.5% of US households will not pay federal income tax this year.
There’s a severe political problem with so many Americans not having any skin in the game. These Americans become natural constituencies for big-spending politicians. After all, if you don’t pay federal taxes, what do you care about big spending? You might even think more spending is better.
Also, if you don’t pay federal taxes, why should you be happy about a tax cut? What’s in it for you? In fact, you might see tax cuts as threatening your government benefit programs.
Thanks for reading!
Carissa Abazia
@CarissaMortgage