Tax the rich?

Question

The Democratic candidates for President seem to be united in their intent to impose more taxes on the wealthy. I offer three questions, one for your opinion, and two for data. With respect to the 10% earning the highest income in the US:
- What percentage of the total income tax revenue do you think they should pay?
- What percentage of the total income tax revenue do you think that they are actually paying now?
- What percentage of the total income tax revenue were they paying before the Bush tax cuts?

Have fun!

Answer 1

Hi, R.H.
Your question certainly has attracted a lot of misinformation and unclear responses.
Let me share some thoughts. (Sorry about taking so much space to get them shared.)

First, someone commented on Social Security taxes, so it's worth clarifying a few things regarding the Social Security system:
Each year there is a maximum income amount on which SS tax is collected (it's $97,500 in 2007 and will be $102,000 in 2008). Once a worker's pay during a calendar year exceeds that amount, no more SS tax is collected from that worker.

So anyone making $102,000 or less next year will pay SS tax (6.2%) on ALL of his income. Anyone making more than $102,000 will pay SS tax on only PART of his income. And that APPEARS to be a break for citizens earning high incomes ... until you realize that the Social Security pension that is being earned by each taxpayer is based on the income that is being taxed to that person. So someone who makes $204,000 and pays SS tax on only half his income will be paying the same amount of Social Security tax as a person who makes $102,000, but he will be earning a pension on only half his income, while the person making $102,000 is earning a pension on his whole income. Both pay the same tax and both get the same pension credit.

So far, it seems mathematically fair, although some would argue that the person with the higher income should pay MORE to get the SAME pension. Well, if you consider people earning less than $102,000, it turns out the person with the higher income DOES have to pay more for each dollar of his SS pension.

Here's why: The SS program is designed so that those who earn less are given more pension credit per dollar of income. If your income is half of the SS wage base (i.e., if you earn $51,000), your pension will be considerably MORE than half as much as someone who earns the SS wage base ($102,000) or more. You paid half as much tax, but you get more than half as much benefit. You got to buy your pension at a lower cost.

And if you make one QUARTER of the wage base ($25,500 in 2008), you earn pension credits at a higher rate than the person earning $51,000.

The Social Security formulas have three salary ranges. For contributions up to the first cutoff point, the worker earns a pension worth far more than the tax he (and his employer) contributed. For contributions from the first cutoff to the second cutoff, the pension credit per dollar of SS tax is much lower. And from the second cutoff up to $102,000, it's even lower; those high-paid workers are getting a really bad deal for their higher tax dollars; they keep contributing, but don't get much more pension than someone earning less.

Now if we take off the $102,000 cap, would we have the higher-paid workers make additional contributions to buy pensions at really lousy rates? Or would we have them pay more and get NOTHING AT ALL for their additional Social Security contributions? I'm inclined not to change the current system, as it has a measure of fairness, but still favors those with low incomes. (The fairness is that you get SOMETHING for every dollar you contribute; but low-income workers are favored because they get MORE for every dollar they contribute than those who earn higher incomes.)

Basically, Social Security works sort of like everything else the government provides. If you earn more, you pay more tax, but you don't get more government services. Those who pay the least tax get the most benefit for their tax dollars, and those who pay the most get the least (per dollar of tax paid).

And that's an American tradition. We collect the most money from those deemed most able to pay. In fact, if someone's income doubles, we don't just double his income tax; we charge him MORE than twice as much because of the higher tax bracket (the progressive income tax). So if the top 50% of the wage-earners in America earn over 90% of the total income, they probably pay over 97% of the income tax, while the other 50% pay only 3% of the total income tax collected. (I don't know what the actual numbers are, but that's what the relationship would be; if those at the top earn x% of the income, they pay MORE than x% of the taxes.)

But your question was what the fair share should be for the top 10%. That depends on what their share of total income is, and you didn't provide that statistic. Whatever their share of total U.S. income is, they should pay more than that percentage of the total income tax collected. The question is: HOW MUCH more?

Well, it's probably more useful to ask what is the MAXIMUM PERCENTAGE of a person's income that the government should take. Right now that number is in the 30's. In the past, I think it has been over 90% for the highest income people (during the 1950s). In my opinion, anything over 50% is unreasonable, and even 40% is extremely high. I guess I'm comfortable with a maximum marginal rate in the vicinity of 35%. But maybe that's just because I'm used to that level.

If there is an unfairness in the current tax system that favors the rich, it is the tax loopholes, not the tax rates. (The rates favor the poor and punish the rich.) The Alternative Minimum Tax was intended to address the issue of tax advantages for the rich, but it is now punishing the middle class, and rumor has it that many of the wealthiest taxpayers are still enjoying tax breaks that give them very low effective tax rates. That is what I see as the major inequity in the tax code. It would be hard to fix it, and it might not have a very large overall effect on income tax collected, but it would be the right thing to do.

One other area that has been discussed in other responses: Estate Tax.
How much should you be able to leave to your heirs without the government taking a percentage? And what should that percentage be? An answer that approximates the tax code in the recent past is: You can leave $1 million with no estate tax, and anything over $1 million will be taxed at 50% (the government takes half of your estate; actually, it starts at something like 35% and quickly increases to MORE than 50%).

My opinion on estate tax is that it's reasonable for the government to collect some tax when money passes from one generation to the next, but 50% is ridiculously high. 10% is more like the high end of reasonable. And this death tax should not affect the vast majority of families, so a number higher than $1 million is probably in order (given that in the near future everyone will need more than $1 million just to be able retire).

Another important point about estate tax: You can be sure that the Kennedys don't give 50% of their wealth to the government when one generation passes its wealth to the next generation. They have trusts that minimize the amount of tax that is paid, so that they can maintain their wealth from generation to generation. So it's not the super-rich that pay the estate tax, it's the sort-of-rich that have to pay.

Bottom line on estate tax: I would lower the rate for estate tax (to maybe 10% maximum), raise the minimum level at which estate tax is due (to maybe $5 or $10 million, and indexed for inflation), and close the loopholes so that everyone has to participate.

P.S. A comment on marvinsussman's response (see below).
This responder has described a tax scheme that would cover all the needs of children, including their education and healthcare; he proposes to allocate the cost of these spending programs to all taxpayers in proportion to their discretionary income.

That's a legitimate point of view (to have government take full responsibility for children's needs and to allocate the costs in that manner). But then he goes on to say that this is what our liberal founding fathers intended. That is absolutely not true.

Yes, our founding fathers were liberals. But they were CLASSICAL liberals, not 20th century liberals. Their vision was for a SMALL government that DID NOT INTERFERE in citizens' lives any more than absolutely necessary. (Witness Thomas Jefferson's observation: "He governs best who governs least.") They would certainly not have approved of the scope of government (or a 50% marginal tax rate) envisioned in marvinsussman's response. They had a fear of a large, powerful government.

We need to recall the purpose of the Bill of Rights (which admittedly came AFTER the founding fathers created the Constitution). Those amendments were intended to protect the citizenry. But not to provide them protection by means of a big powerful government. Rather, the Bill of Rights protects the citizen FROM an over-reaching government; it describes a series of things that the GOVERNMENT is not allowed to do to a citizen. The framers wanted to create a meaningful central government, but one with limited powers that would mostly stay out of our lives (not provide for everyone's needs and take away 50% of everyone's earnings).

Bottom line: Sure, go ahead and argue for larger government programs; but don't pretend that Thomas Jefferson and Co. would approve of what you're proposing.

Answer 2

The evil rich republicans pay very little only about 90% of the TOTAL TAX BILL! If may be 75%, I will have to look it up. Before the Bush thing it was that high and after it is about the same.

The tax thing when someone passes away has not made that big of an impact. 1 million , then 1.5 million the 2 million. So the ones with the really big money like Al Gore, the lawyer guy, John Edwards, Hillery, etc. have not really been affected

It may have only been 70%, but I think it is the higher number. Funny thing is the IRS takes about 65 cents on the dollar to collect. What a waste.
Deal is the million deduction is really small, but helps the folks with a small estate, no impact on the super people. Hope I am right about this if not I apologize.

Merry Christmas and take care. Will look up the number and double check, but hope you know.

Answer 3

With the tax-loopholes, the rich are able to escape paying their fair-share. The Bush tax-cuts do allow the rich to keep more money for investment in new jobs, here is the problem: That money can be invested abroad, benefiting foreign workers competing against an American worker as investors look for the most profits and could careless if it helps or hurts a fellow-American! Do rich Americans really care about the plight of the nation as a whole? One could not tell they do by the tax-code! All income without limit should be taxed on Social Security. It is the one system, that insures an income for all concerned and it has been raided to pay for other programs, which is flat wrong! How much money does a billionaire need, before they are satisfied? A Trillion dollars? The US tax system needs to be changed! Any investment from tax-cuts should be penalized if the investment is not in America, instead of foreign countries!

Answer 4

Not sure. The rich may have gotten to where they are by working very hard and provide many jobs and donate money to good programs, some however, will use that money to hide it in some kind of fund to get richer for themselves or move business overseas screwing americans rich and poor alike. We can't decide who to tax based on intent, but the tax cuts I think your referring to go by a percentage so that it is fair to everyone. However, once you make it above poverty it is smooth sailing for you for the most part and the poor, intelligent in spite of school counselors and hard working most of them can't get ahead. So how do the rich respond. They give the poor extremely high interest loans so that they can never get ahead. I guess life's not fair and it is hard to decide how people should pay taxes. I know that in ancient Rome the poor where very well taken care of and everyone helped each other, because the powerful in Rome wanted to make themselves stronger. I guess we either have government programs or we don't. We either run the government like a business or we don't. It is hard to do both, especially when everyone is vieing for the same resources.

Answer 5

Like the question, but don't know the stats to answer . As for the first part, I think everyone should pay the same percentage out of their earnings. It is the only fair thing to do. Let's say 10% to make it easy. If you make $10,000 a year, pay $1,000. If you make $100,000 pay $10,000. Don't punish people for being successful. We are a capitolistic country. Plus, who do you think gives more to charity.

What people don't seem to get here is that the rich employ the lower and middle classes. If you tax the rich more, they can't hire as many people and can't pay competitive salaries. Why is this so hard for people to get? It is very basic economics.

Answer 6

They should be taxed enough to cover the federal and state subsidies and tax deferments and tax breaks they receive currently and then some to include all previous subsidies they've received to date! No less than 50 percent of their total income. They hide income and revenue so they never count half of it anyway! Some pay nothing, not one red cent! Soak the rich, and make them pay until they are just like the rank and file! I have money and I don't care what I pay for taxes because I know I can't go through all of it before I die! Besides I can always make more!

Answer 7

Just 17% of Likely U.S. Voters now say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending Sunday, July 24. That finding is the lowest measured since January 11, 2009. From August 2007 to early January 2009, confidence in the nation’s current course ranged from a low of 10% to a high of 24%. When President Obama assumed office, optimism rose to 27% and climbed to the low to mid 30s until May 2009. That figure has steadily declined since. Seventy-five percent (75%) of voters say the country is heading down the wrong track, the highest finding since early January 2009. Since that time, voter pessimism had ranged from 57% to 72%. Most Republicans (91%) and voters not affiliated with either political party (77%) believe the country is heading down the wrong track. Even a strong majority (58%) of Democrats now say the country is heading in the wrong direction.

Answer 8

You are asking the wrong questions about the best way to finance government. Start with the preamble to the Constitution: "...to promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,...". The men who signed that document had risked their lives for the common good. We must keep faith with them.

Keeping faith means believing in the common good and acting like you mean it. First come up with an estimate of requirements that include cost of military and other security systems, the cost of all infrastructure construction and maintenance, the cost of free health care (pre-natal to post-graduate) for all children (Posterity!), the cost of all the totally free education (K to post-doctoral) that any child (Posterity!) can absorb, care of the sick and aged, reserves for catastrophe, etc.

That would be the estimated national requirement "to promote the general Welfare...", etc.

Then, in computing federal income tax, allow each family to deduct for a reasonable amount of non-discretionary expenses: food, clothing, shelter, entertainment, etc. Of course, people who own a large home will have larger expenses, within reason. The discretionary family income should then be taxed to whatever percentage is needed to meet the estimated national requirement.

As an example, let's say that the calculated percentage is 50%. Keep in mind that, in this scheme, there are no family expenses for health or education, cradle to the grave.

Then, a family earning a $50,000 net income of which $2,000 is discretionary, would be taxed $1000.

A family earning a $200,000 net income of which $50,000 is discretionary, would be taxed $25, 000.

A family earning a $10,000,000 net income of which $9,000,000 is discretionary, would be taxed $4,500,000.

For a nation in dire straits, a 90% tax rate would require corresponding taxes of $1,800, $45,000, and $8,100,000.

That, or something like that, would be a fair tax system that would "promote the general Welfare", etc. It would also promote national unity without political strife. We would be keeping faith with our Founding Liberals.

Answer 9

well i think that we should keep taxes as they are. I will probably get a lot of boos about it, but it has been proven that bushes tax cuts have created more money for the rich and with more money to the rich in turn the richer do get richer because they invest that money into stuff which guess what my friends?

Thats right creates more jobs. But hey of course your liberal wont like to hear that.

Here is the negitive on this fact: It hits middle class kind of hard

Answer 10

I think that the only fair tax is the sales tax. I am very basic in my beliefs of where my money goes. If you can't feed youorself, you should starve, and government needs to be run like a business.

Answer 11

NO, bush and his cronies will have to pay tax.

i pay 34%, no one who makes more then 200,000 or over pays even close to that, or we would have no defict.