Taxes

Note: Before reading My Thoughts, please read My Disclaimer!

Every democratic party politician, whether they admit it or not, wants to raise taxes (but only on the upper class). In other words, they all think that other people should be paying more for the benefit that the rest of the people receive. This attitude astounds me. Who would walk into a restaurant, for example, and demand that others pay more for their food so that they themselves could pay less? It's completely ridiculous. Granted, the target for the tax increases is always to do "nice" things, such as pay teachers more, add more policemen/firemen, but I have to wonder what they are doing with all of the rest of the money I'm already paying in taxes. How can what I'm taxed not be enough, especially when you consider how disproportionate our taxes are already. I think the following example is very helpful.

INCOME TAX - Who really foots the bill? An analogy with factual numbers.

First, 100 people are selected, with each person representing 1% of the U. S. population, ranked by total household income. Dividing these people into five groups gives you a rough representation of what's often called upper class, upper-middle class, middle class, lower-middle class, and lower class incomes.

These 100 people pile into the Taco Shack restaurant and are each given 1 taco. The menu shows tacos are 93 cents each - $1.00 with sales tax, so the total bill for everyone is $100. (Why the government needs to get paid every time someone eats a taco is a whole other mystery.)

TRULY FLAT TAX

If the bill was to be paid like most people who go to a restaurant (a truly flat tax), then everyone would chip in $1. But, we all know that's not how our taxation system is set up.

To pay the bill, we'll get the 100 people to line up, with the first in line being the one with the highest household income, in descending order.

FLAT TAX (RATE)

If the bill was to be paid with the proposed and much-talked-about flat tax (rate), the bill would be roughly as follows:

• The first 5 guys would pay $4.00 each (for their $1 taco).
• The next 15 guys would pay $2.27 each.

The cashier could tell you at this point that while only the first 20 people (upper class) have paid, they've already paid a total of over $54 towards the $100 total bill. Yes, the top 20% paid over 54% of the bill.

• Continuing, the next 20 (upper-middle class) pay $1.05 each, which is pretty much what you might expect, considering the menu price.
• The next 20 (middle class) pay just 68 cents each.
• The next 20 (lower-middle) pay only 41 cents each.
• The final 20 (lower class) pay 16 cents each.

Amazingly, this (proposed) taxation system is deemed by most democratic party politicians to be too burdensome on the poor, despite the fact that about half of the country pays less than HALF of their fair share.

GRADUATED TAX

Let's pay the $100 total bill the way income taxes are presently calculated.

• The first guy in line pays $29.50 (yes, for his $1 taco). That's almost 30% of the whole bill by himself!
• The next 4 each pay $4.90.
• The next 5 each pay $2.44. The first 10 (top 10%) paid over 61% of the whole bill.
• The next 10 each pay $1.53. The first 20 (upper class) paid over 76% of the total bill!

• Continuing, the next 20 (upper-middle class) pay 82 cents each.
• The next 20 (middle class) pay 35 cents each, roughly 1/3 of cost.
• The next 20 (lower-middle class) pay just 3 cents each.
• The final 20 actually are GIVEN 3 cents each (along with the free taco).

Observations:

• Only the upper class pay their fair share of the bill (and then some)! The other 80% of them pay less than cost.
• The typical person in the bottom 40% (approaching half of the population) pays NONE of the bill. They skip out on the bill and rely on everyone else to pay their way.
• This should dispel the popular myth that the rich pay no taxes. In fact, the wealthiest 1% of the population pays almost 30% of the total income tax burden, which is 36 TIMES as much as 80% of the population!
• Another popular theme is that we need a middle-class tax break. Proponents of this claim that tax breaks always benefit the upper class. Well, the whole middle class (20% of the population) only pays 6.9% of the total income tax burden, while the upper class pays for 76.6%. Even if you expand the definition of middle class to be the middle 60% of the population, that 60% only pays 23.7% of the total bill (with over 2/3 of that being paid by the upper-middle class). It's pretty hard to really reduce taxes without reducing the taxes paid by those that foot over 3/4 of the total bill. How ridiculously disproportionate does the taxation system have to be?

Before you say, "Those rich people, they have the money -- stick it to them!", let's remember who the rich are, how they got that way, and who benefits from what they do. Sure, some rich people are athletes, movie stars, and musicians. Few would disagree that those people are overpaid. However, on average, their careers are very, very short. While they can certainly have another career later in life, very few of these people are making extreme amounts of money for even a decade.

After those types of people are big business upper management (of which there are relatively few) and lots and lots of small business owners. The latter often take a chance by investing their life savings for the opportunity to work day, night and weekends for years and years in order to pursue a dream. If it works out for them, who are we to say that they don't deserve their reward? Also, many of the wealthiest are the ones who create the jobs that the rest of us have. It is because of their success that many others have work.

When considering the numbers, remember that those who are retired and those in college (that can't be claimed as a dependent on their parents' return) have little income, because they generally aren't working much. So, as a result, they fall into the poorer categories of this study. But, many retired people and students are hardly at/below the poverty level! This skews the numbers even further.

I would never suggest that the poor people in this world deserve to be poor. However, there are a lot of people who came from very poor families that significantly improved their situation by taking advantage of the free educational system -- actually studying, and then working hard. It can be done. In fact, it is naive and unfair to expect it to happen otherwise.

The facts are these:

• Families in the top 1% of household income pay over 20% of that income in federal income taxes.
• The typical family with the top 5% of household income makes $250,146 -- a lot, definitely. But, when you factor in all of those overpaid celebrities, the typical family in this group makes a lot less. On average, this group pays 16.9% of their household income on federal income taxes, which is $42,275 per year for the typical household in this group.
• The typical upper-class family (top 20%) brings in $141,620 of total household income. Again, it is a lot of money, but for a two-worker family, that's not an amazing amount, it's just two people with well-paying $70,000 jobs. That upper class family pays 13.7% of their household income on federal income taxes each year, which is $19,402 typically. (In fact, while this example deals with the typical income amount, to qualify as "upper-class", a household only has to make $81,960. That's one very good job, or just two workers earning $40,000.)
• By contrast, the typical middle-class household makes $42,361 and pays just 5.6% ($2,372) in federal income taxes.

Let's also remember what our federal income taxes pay for: national defense...(not education, as that's state/county level)...(not police/fire, as that's state/county/city)...and highway improvements...oh, and a lot of programs to help the poor people in this country improve the quality of their life.

So, in summary, the upper class (top 20%) pay over 76% of the federal income tax bill, of which a large chunk goes for countless programs to help the poor...who continually complain that the wealthiest aren't paying enough... Hmmm...sounds a bit like freeloading to me.

And, this analysis doesn't even factor in other forms of taxes, such as state taxes, sales taxes, personal property taxes, gasoline taxes...

Sources: Don't believe that my numbers are right? Check for yourself: Household Income Distribution, 2000 (Census Bureau Historical Income Tables - March 21, 2002) and Distribution of Federal Taxes, 2000 (Department of the Treasury - September 1999).