Tax Fairness

The President says he wants the wealthy to pay their fair share. What would that be? He never says. How would one decide whether a given level of taxation is fair? He never says. Neither do his supporters, who are remarkably calalier about the theoretical foundations of their policy positions.

Let’s start by asking, Who pays how much now? And let’s consider not just federal income taxes but payroll taxes as well. Here are the numbers Ross Kaminsky has derived from the Congressional Budget Office report for 2008 and 2009:

In 2009, the highest quintile (top 20 percent) of earners, with household incomes over $223,500 before taxes, took in 51 percent of the nation’s income but paid 68 percent of all individual federal taxes. The middle quintile — the oppressed middle class, earning between $64,300 and $93,800 — took in 14.7 percent of America’s income but paid only 9.4 percent of federal taxes. And the lowest 20 percent of earners, making less than $23,500, brought home 5 percent of the nation’s income (much of which was transfer payments from the rest of America) but paid only 0.3 percent of federal taxes.

The effective federal tax rates for these groups were: 1 percent for the lowest quintile, 11.1 percent for the middle quintile, and 23.2 percent for the highest quintile.

These are average, not marginal, tax rates. That’s an important distinction, because the history of tax rate changes over the past fifty years has shown that raising the marginal rate does not necessarily raise the average rate; indeed, it can decrease it as people find ways of sheltering income.

Obama’s defenders claim that his “You didn’t build that” remark meant merely that everyone builds on the work of others and therefore owes something in taxes. How do they reconcile that with the fact that the bottom half of the population now pays no federal income tax at all? Don’t those people owe something, too? Are Obama’s supporters willing to follow their own logic? And since the top quintile already pay more than 23% of their income in taxes, why does what Obama said, on their interpretation, have any implications at all for tax rates on the affluent?

To return to the original question: If 23% isn’t enough, how much would be enough? And how do you intend to bring that about?

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