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Who Pays The Taxes in America?

Posted by Larry Doyle on September 14, 2012 12:43 PM |

When politicians out there want to talk about “fairness in the tax code”, you may care to forward them the bar graph highlighted below.

With credit to the folks at Business Insider,

Here are the income taxes paid by the respective income percentiles. Note how little the bottom half pay (blue). Note how much more as a percentage of the whole the top 5% are paying. 

Here are the income taxes paid by the respective income percentiles. Note how little the bottom half pay (blue). Note how much more as a percentage of the whole the top 5% are paying.

This is NOT healthy for our nation. When half our nation has little to no “skin in the game” is there any surprise why we have such little accountability in Washington? NO DOUBT!!

I am all for discussing how to reform the tax system. Let’s start that discussion with “accountability” then move to “responsibility” on our way to “obligation”. Let’s make the discussion substantive and incorporate the topic of double taxation on investment income as well as the topic of carried interest.

Why is it that I think half the people in the audience may be all for this discussion while the other half are poised to unsubscribe from this blog? Before you do that, wouldn’t it be great if we had a conference which addressed the following in a truly granular fashion. Not the standard worthless 30 second sound bites that most pols put forth.

1. Tax reform
2. Public Education/Teachers Unions 
3. Family Structure/Issues with Single Parent Births
4. Wall Street-Washington Incest
5. Crony Capitalism

Yes, a conference directed toward addressing a whole host of issues that politicians and the media largely leave at the back door.

What other topics might readers like to discuss?

Let’s not forget that many a politician from both sides of the aisle have made a career — and a lot of money along with it — from exploiting the people and the process embedded within a wide realm of the topics referenced above. A lot of money. 

PARASITIC POLITICOS ENGAGED IN RUNNING RACKETS ARE SENDING OUR  NATION DOWN THE TUBES. 

Navigate accordingly.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

  • FV

    As usual you are on a tear…….the tax fairness issue along with fixing the tax code overall needs to be done.

    Was with John Maldin yesterday who made the point lets just cut the rate and cut ALL deductions…..

    works for me and probably everyone else….

  • RB

    I am surprisingly disappointed at your comments on that tax fairness chart. Surely you understand that the top 5% earn more than 70% of total national income, yes? So if the top 5% combined is only paying about 50% of the tax…then they are clearly underpaying their fair share. The same holds true in reverse for the bottom 50% of the earners.. they earn a pitifully small amount of total national income and thus should correspondingly be paying a quite small amount of the overall tax burden as well. Admittedly I was only a banker for 25 years, but come on now, you were a financial guru of sorts for equally as long and you know better than to make any assessment like that with only one side of the story.

    In reality, we all know we should be using a flat percentage tax for everyone, no exceptions, no deductions, no exclusions. We could do away with the IRS and no one could reasonably object that anyone else was not paying their fair share. We should not be using the tax code to incentivize one level of income earner to the detriment of another.

    There’s no question in my mind that we continue to move away from God, away from the family unit and deeper into dishonesty and corruption. In fact, it seems to me that we are already in much deeper than any sensible corrective measures would cure absent at least a decade or two of considerable economic pain, which of course will be borne, as always, by those who can least afford it.

    Politicians recognized several years ago that the party was ending but nearly all of them are so totally consumed with getting their hands on as much of the remaining wealth of the citizenry as they can before they lose total control and it all collapses. These days, they don’t even bother to pretend they are interested in the agenda of the majority of Americans.. and simply pursue their private wealth building agendas, at least until election season gets underway, during which time they polish up all their old lies and a few new ones in order to stay in office just a bit longer to feather their nest as much as possible at our expense.

    Is the pen still mightier than the sword? I am not sure that old rule applies to Americans any longer. We seem to have have become totally docile over the past four decades or so and seem to just be patiently waiting for whatever comes our way, actually having fallen for the B.S. and outright lies from politicians and financiers hinting that recovery is truly underway and that the government will always protect and provide for us. How can any sane person possibly still believe such a total fantasy in this day and age?

    I think it was Einstein who said “Two things are infinite: the Universe and human stupidity; and I’m not sure about the Universe.” I await your reply.

  • P deSwift

    Larry as a foreigner looking at your graph I think you have missed the bleeding obvious. 50% of your population does not have an income that is big enough to be taxable. The myth that the US is a wealthy country is revealed by these numbers. Half your population is poor verging on destitute.

  • LP

    To be fair and not appear to be pushing an agenda, this chart should never be shown without a comparable income stratification chart.

  • Eugene

    I am all for discussing how to reform the tax system. Let’s start that discussion with “accountability” then move to “responsibility” on our way to “obligation”. Let’s make the discussion substantive and incorporate the topic of double taxation on investment income as well as the topic of carried interest.”

    I’m not sure you have the brass to face the truth. Today half of America has $3 for every $10 they had in 1995. Today the tax code redistributes $1.3 trillion in tax expenditures mostly to the well to do and business. This amount which is redistributed by the tax code every year is more than twice the net wealth owned by half of America. Real tax reform is called the 2-4-8 Tax Blend and you can read more about it at TaxNetWealth.com. I will be happy to write an article just for Business Insider if you have the guts to consider a VAT and net wealth tax as part of the solution.

  • LD

    To all those who have commented here, I thank you.

    I wrote this commentary in the manner that I did with the hope that it would be intentionally stimulating, no pun intended. Once again, the highly intelligent readers who traffic this site have not disappointed me.

    Although some may think on the surface that I am “strictly” zeroing in on the taxes paid by those generating the lowest 50% of income in our nation, that approach was merely “the bait.” I thank you for taking it and furthering the dialogue here.

    First and foremost, in regard to the point of the need to address incomes, when I write,

    Let’s make the discussion substantive and incorporate the topic of double taxation on investment income as well as the topic of carried interest.

    I intentionally want to open the topic that I have heard NO politician broach. What is that? Carried interest.

    Why does Mitt Romney pay ~15% tax rate? It is not just that he is paying that rate on his long term capital gains BUT also that he has been able to redirect earned income on a pre-tax basis back into investment vehicles and then pay a tax rate that equates to long term capital gains. This “carried interest” is why SO MANY of those occupying the top 1% pay a lower rate. I personally believe carried interest should be eliminated. Why isn’t it?

    Let’s go to topic 4 and 5 on the agenda. The boys in the top 1% get to play the “carried interest” game because the pols in Washington and elsewhere hit them up for what can only be described as “payoffs/payola”. It’s a racket.

    When we hear pols going after Romney for the tax rate he has paid, they are being disingenuous. Romney has taken what the system itself has offered.

    I personally believe carried interest should be eliminated while simultaneously seriously flattening the overall tax code. Put the top rate somewhere in the vicinity of 25%.

    I also included the topics 3 and 4 regarding Public Schools and Family Structure for the simple reason that if everybody in our nation needs to share in the effort to move our nation forward, then these topics are critically important to the discussion. We can not have a nation divided between what many view as either Haves and Have-Nots and/or Givers and Takers.

    Let’s put these issues out on the table at the same time that we discuss the relative merits and fairness of the tax code.

    Last AND certainly not least, the discussion NEEDS to be wrapped in the payoffs which far too many in Washington, on Wall Street, and elsewhere have taken and given. These payoffs, which I define collectively as incestuous crony capitalism, promote an unproductive, inefficient, corrupt economy.

    Too much to digest at one sitting? Perhaps BUT oh so necessary if our nation is to have a chance to move forward.

    So, I thank you for furthering the dialogue and please know I am all for total transparency in terms of incomes earned, taxes paid, and incestuous crony capitalism exposed.

  • Peter S.

    It is well known to both parties that a progressive flat tax with limited deductions could resolve our nation’s debt faster than any other hocus-pocus congress can come up with. I believe the single reason a flat tax has never been seriously brought to the table is that it would put a whole lot of attorneys and accountants out of work.

  • Donald

    As I’m reading your column today I find I have mixed reactions. I support it, but…..

    My parents worked hard to provide me a good home and they and all our neighbors paid their taxes to provide good public schools for me. Similarly, I have paid a lot in taxes to provide an education to not only my children and grandchildren, but also other children in the community (I sometimes think of it as a deferred payment for my own education). In the long run I think we are all better off if every child has an opportunity for a good education, so I don’t begrudge subsidizing them.

    My wife and I owned income property to help pay our bills. We tended to choose to rent to families with young children, and wound up charging less in rent than market value, simply because most of these families were really pressed financially. Many were making not much more than minimum wage, and working multiple jobs to support their families. They probably did not pay much in taxes.

    Back to your column. Of course we are better off if everybody has skin in the game. And as you point out, an increasingly smaller percentage of people are shouldering an increasing percentage of the tax load, which is less than ideal. However, this results from the distribution of wealth becoming increasingly skewed toward a smaller percentage of the population controlling the wealth, not from the tax rate schedule becoming more progressive (it has actually become less progressive).

    So, to extent you are arguing that families are better off with two parents – of course – a no-brainer. If you are arguing that we make the tax code even less progressive, and shift the tax burden increasingly downward it seems to me that that this will effectively push more people into poverty.

    On another subject, I just finished reading James Rickards Currency Wars, and thought it was really good. To me the arguments he makes are consistent with ideas you put forward in your columns.

    • LD

      Donald,

      Please see my comment above in which I address “carried interest” and other points.






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