Since he first appeared on the national stage, Barack Obama has been claiming that the “rich” don’t pay their “fair share” of taxes. But to the contrary, the “rich” pay far more than their “fair share,” which official IRS and CBO data have shown for years, reconfirmed in new, recent reports.
The latest CBO report shows that the top 20% of income earners pay 70% of all federal taxes, while earning just over 50% of before tax income. The top 1% pay 24% of all federal taxes, while earning only 14.6% of before tax income.
By contrast, CBO reports that households in the middle 20%, the real middle class, pay 8.9% of all federal taxes, while earning 14.1% of before tax income. Households in the bottom 20% pay 0.6% of all federal income taxes, while receiving 5.3% of before tax income.
Federal Income Taxes
If we look just at federal income taxes, where the policy debate is, the disparity is even worse. The bottom 20% of households pay an income tax rate of -7.5%, CBO reports. The next lowest 20% pays an income tax rate of -1.3%. That means that instead of paying the IRS, like the rest of us, the bottom 40% are paid by the IRS.
The middle 20%, again the real middle class, pays an average income tax rate of just 2.4%, while earning 14% of before-tax income. Obama has been telling them for years the deck is stacked against them. Apparently, he has been pitching to low information voters who don’t know anything about IRS or CBO data. Or maybe we got a low information President.
A more recent report on the latest, publicly available, official IRS data, published by the Tax Foundation, shows that the top 1% paid 38.1% of total federal income taxes in 2012, almost twice their share of income at 21.9%. In fact, these top 1% themselves paid 28% more in federal income taxes than the entire bottom 90% combined, about 122 million households! That bottom 90% earned 52% of the income, yet paid 29.8% of federal income taxes.
The top 20% carries virtually the whole load of federal income taxes, paying 93%, almost twice the share of before tax income they produce, at about 50%.
Obama has also repeatedly proclaimed that Republicans only cut taxes for the rich, but not for the middle class and the poor. But the latest CBO report states, “Households in the middle three quintiles of before-tax income, taken as a group [the middle 60%], experienced a decline in their average tax rate of almost 7 percentage points over the 1979-2011 period, from 19.1%…to 12.2%….” That amounted to a cut in the average federal tax rate for the middle class under Republican policies going back to Reagan of 37%. The remaining taxes are mostly Social Security payroll taxes, as the Reagan Republicans almost completely abolished federal income taxes on the middle class.
CBO further reports, “Between 1984 and 2007, the average federal tax rate for households in the lowest quintile [bottom 20%] of the distribution of before-tax income declined fairly steadily.” The truth is that it was the Republicans from Reagan to George W. Bush who through their policies actually phased out all federal income taxes for the poor and the working poor, and turned the federal income tax into a cash machine for the bottom 40%.
You won’t get that straight from our low information President either.
Economic Growth and Opportunity Is the American Dream
Most importantly, though, Americans are highly mobile, moving up and down the income ladder, based on education, effort, family conditions, bankruptcy, retirement, investment, and business success and failure. A young Harvard law student this year may not be able to make bus fare home for the holidays. But next year starting at a Wall Street law firm he will rocket near the top.
Social media billionaires in their 20s and 30s developed their ideas in a walk-up flat, scrounging for their next meal. A high percentage of Americans find themselves in the top 20% at least once in their lives when they enjoy a major investment payoff, sell their home or business, or receive a bequest from family members.
Dynamic economic growth and opportunity, not static income equality, is what America is all about. We can restore that to America if we move to a low, flat rate tax that becomes essentially a “consumption” tax by excluding taxation on personal and corporate savings and investment.
But punitive overtaxation on the most productive, and excessive redistribution, shuts down long term economic growth and the American Dream. That is why inequality has actually consistently risen even faster under President Obama, as lagging economic growth has left the poor and the middle class with stagnating or falling wages, while incomes and wealth for the rich have been booming with the stock market.
Lew Uhler is Founder and Chairman of the National Tax Limitation Committee, and of the National Tax Limitation Foundation. Peter Ferrara is Senior Fellow for Entitlement Reform and Budget Policy for the National Tax Limitation Foundation, and for the Heartland Institute.
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