Wednesday, 03 September 2008

• Income Tax: Give to Caesar ...

  As promised, I'm going to detail the stats regarding income taxes. There's a lot of talk surrounding tax cuts and tax increases, how all promise to help the "middle class" - let's see where the numbers actually fall.
  
  First, historical facts. All data taken from the Tax Policy Center, a joint venture of the Brookings institution and the Urban institute
  
  For calendar year 2008, the current tax brackets are: (original doc here)
  
  

  If your filing status is Single				If your filing status is Married filing jointly
  Taxable Income				Taxable Income
  	But not	Marginal Rate			But not	Marginal Rate
  Over ---	over ---			Over ---	over ---
  $0	$8,025	10%		$0	$16,050	10%
  $8,025	$32,550	15%		$16,050	$65,100	15%
  $32,550	$78,850	25%		$65,100	$131,450	25%
  $78,850	$164,550	28%		$131,450	$200,300	28%
  $164,550	$357,700	33%		$200,300	$357,700	33%
  $357,700	and over	35%		$357,700	and over	35%

  
  Now, for the income tax according to income (the most recent data is from 2005; the brackets haven't changed much) > original doc here <
  
  

  Distribution of Individual Income Tax Returns and Earnings, by Statutory Marginal Tax Bracket, 2005
  			Percentage		Those Taxpayers'
  			of Taxpayers		Share of
  			Facing That Rate		Total Earnings
  Statutory Marginal Rate
  	0a		19.7		3.8
  	10		21.6		7.7
  	15		36.9		33.8
  	25		16.5		28.4
  	28		2.1		6.1
  	33		0.4		1.8
  	35		0.4		7.5
  Alternative Minimum Taxb			2.5		11.0
  			____		____
  		Total	100.0		100.0

  
  There's some interesting data in these numbers:
  1) 20% of taxpayers paid no tax. Just so we know they weren't rich people who found some way to deduct their incomes away, these folks accounted for 3.8% of all wages and salaries made in the US that year.
  
  2) If you include the AMT, which is pulling in more and more "middle-income" wage earners every year, 5% of US wage earners paid 28% or more of their taxes. This small 5% accounts for 25% of all wages and salaries made in the US.
  
  Now, the real fascinating numbers (abbreviated, full document here):
  
  

  Shares of Federal Tax Liabilities for All Households,

  by Comprehensive Household Income Quintile, 1979-2005

  
  

  Year

  Lowest Quintile

  Second Quintile

  Middle Quintile

  Fourth Quintile

  Highest Quintile

  All Quintiles

  Top 10%

  Top 5%

  Top 1%

  
  

  2005

  0.8

  4.1

  9.3

  16.9

  68.7

  100.0

  54.7

  43.8

  27.6

  
  Corresponding average pre- and post-tax incomes for each quintile for correlation: (Data here and here)
  

  2005

  15,900

  37,400

  58,500

  85,200

  231,300

  84,800

  339,100

  520,200

  1,558,500

  2005

  15,300

  33,700

  50,200

  70,300

  172,200

  67,400

  246,300

  369,800

  1,071,500

  Effective rate =  3.7%                  10%            14%                17.5%          25.5%                                                    27.4%            28.9%          31.2%
  
  1) The bottom 60% of incomes accounted for 14.2% (about 1/6th) of all tax paid
  
  2) Conversely, the top 40% of incomes accounted for 85.6% (5/6th) of all tax paid (yeah, I know it adds up to 99.8%).
  
  3) Finally, the top 5% of incomes accounted for 43.8% of all tax paid
  
  So, what does this all mean? In summary:
  
  I) A lot of people in this country pay very little income tax, if at all
  
  II) The "richest" people in this country pay a large proportion of the income tax pie
  
  III) A small percentage of people in this country pay a large proportion of the income tax pie
  
  Now what do each of the candidates' tax plans propose?
  
  Obama:
  Tax cuts all around up until somewhere between the 250 and 500k income mark (about the 10th percentile)
  
  What will this do to the tax liability of each "average quintile" income, assuming 2 kids and using 2005 data?
  
  
  

  Year

  Lowest 1/5

  Second 1/5

  Middle 1/5

  Fourth 1/5

  Highest 1/5

  All 1/5

  Top 10%

  Top 5%

  Top 1%

  
  

  2005pre

  15,900

  37,400

  58,500

  85,200

  231,300

  84,800

  339,100

  520,200

  1,558,500

  2008post

  15,802

  34,636

  50,702

  70,847

  178,674

  67,400

  252,774

  363,085

  995,127

  Effective rate =  0.6%                  7.4%            13.3%             16.8%          23%                                                    25.4%            30.1%          36.1%
  
  McCain:
  Tax cuts for various brackets; nobody gets a tax increase.
  
  

  Year

  Lowest 1/5

  Second 1/5

  Middle 1/5

  Fourth 1/5

  Highest 1/5

  All Quintiles

  Top 10%

  Top 5%

  Top 1%

  
  

  2005pre

  15,900

  37,400

  58,500

  85,200

  231,300

  84,800

  339,100

  520,200

  1,558,500

  2008post

  15,300

  34,181

  50,921

  71,021

  178,674

  67,400

  246,300

  370,085

  1,072,622

  Effective rate =  3.7%                  8.6%            11.6%            16.6%          22.7%                                                    27.4%            28.8%          31.1%
  
  Summary
  Obama's plan is class warfare and wealth redistribution, pure and simple.
  
  The "tax cuts" for the lower 60% amount to perhaps $500, up to $900 a year. The effect on overall tax revenue collection will be minimal, as the lower 60% already does not shoulder a very large percentage of the entire population tax burden.
  
  However, he will take the top 5% of incomes and mandate them to pay more than their already large percentage - and more than the shortfall from the lost tax revenue paid by the lower 60%.
  
  Translation: it's not enough that the "rich" pay a large part of their incomes towards taxes and account for almost half of tax revenues ... it's somehow not "fair" that the rich got rich, so let's make them pay more!
  
  And his rhetoric of "helping the middle class" and "sticking it to the rich" appeals to folks because he is keying into a key human emotion (or sin, depending on how you look at it), which is envy. "I'm struggling financially (which is true), I get a tax cut (nice), and I get someone else - namely the rich person that I'm not - to pay for me (even better)."
  
  Remember the windfall taxes that he proposed for Exxon-Mobil and the other companies that made many, many billions of dollars (already leading to many, many billions of corporate tax revenue) - the message was, "it's not fair that they made so much money, so let's legislate a way to get our hands on more of it!"
  
  Christ said, "Render unto Caesar what is Caesar's, and render unto God what is God's" (Mt 22:21), but as you can see, if people can get away with rendering nothing and having someone else render it for them, they're more than happy to do so.
  
  With regards to John McCain's plan, he essentially leaves the bottom quintile unchanged, with tax cuts from 35k up to 200k (Obama's tax cuts also end at 200k). This puts more money into most people's pockets, which leads to more discretionary spending (or saving, either are nice) and helps the economy. This is in line with his reply at the Saddleback forum ~ "I want everyone to be rich" ~ by giving them more $$ to work with.
  
  Finally, in case anyone wonders if I'll benefit, I will stand to have an equivalent tax cut from both plans, so I have no specific vested interest in choosing McCain's plan over Obama's.
  
  I also acknowledge that it is a Biblical responsibility for those who are more fortunate to help out their less fortunate brothers and sisters. This mandated in the tax code, where the rich pay a larger percentage of their incomes as well as a larger percentage of the overall tax burden.
  
  Any further charitable giving is an obligation, but each person should voluntarily choose the amount and to which charit(ies) to support. Yes, I am sure there are those who miserly hold on to their wealth. But to mandate "charitable" giving by increasing tax rates on the rich reeks of class warfare - forcing redistribution of wealth, pitting those with lower incomes against the rich, and removing incentives to move up in income / removing personal responsibility. More on this later.
  

  • 1:48 AM
  • 137 Views
  • 4 eProps
  • 3 Comments