Tax Cuts for the Wealthy

By Deane Barker • September 12, 2010 • tags: politics •

Note: Before you read this, know that my thinking on this has changed quite a bit over the years.

First, I’ve become aware that income taxes are just part of the overall tax situation, and when you take other taxes into account, the burden evens out considerably (this video provides a good explanation). Also, read this article: No, the Richest One Percent Don’t Pay 40 Percent of the Taxes.
Second, I’ve come to believe that the U.S. economy ultimately rewards wealthier people for paying a larger share of the taxes, which I talked about in “Why the Wealthy Subsidize the Tax Burden of the Middle and Lower Class.”

I’m leaving it here for honesty’s sake, since it was something I wrote and stood by at one time. But my position has changed as I’ve gotten older and learned more, which is healthy.

This is such a loaded phrase: “Tax cuts for the wealthy.” Every election season, it’s thrown around like a weapon. And it’s never questioned – it’s constantly accepted as patently bad, even downright evil. If any politician had anything anything to do with “tax cuts for the wealthy,” they should be thrown out of office.

I’m going to question the apparently badness of this phrase and its underlying action. I’m going to argue that “tax cuts for the wealthy” aren’t necessarily as evil as everyone makes them seem, and one of the most pernicious things to come out of modern politics is this blatant, driving need to demonize the wealthy.

Here’s an important fact, and one that always seems to slip off the radar come election time: the wealthy pay the vast majority of the taxes. CNN (you know, that liberally-biased media source…) had an article last year which analyzed who paid what in taxes:

The highest earners pay the lion’s share of the dollars Uncle Sam collects.

The top fifth of households made 56% of pre-tax income in 2006 but paid 86% of all individual income tax revenue collected, according to the most recent data available from the Congressional Budget Office.

Narrowing in further: The top 1% of households, which made 19% of pre-tax income, paid 39% of all individual income taxes.

Whoa. Let’s think about that for a second. The top 1% of income earners in this country – you know, the fat guys with the top hats, monocles, and cigarette holders that sit around all day and plot the exploitation of the American worker – they pay for about 40% of the individual income taxes in this country. Yet they only made 19% of the money.

From the same article:

The Tax Policy Center estimates that for 2009, 43% of tax units (most of which are lower income households that may or may not file a return) will have no income tax liability or will have a negative income tax liability, meaning the government will actually pay them.

When measuring the tax burdens from income tax and payroll tax combined, the Tax Policy Center estimates nearly 12% of tax units will have zero or negative liability.

So, 40% of the people have no tax liability? Yet, my guess is that lower-income households consume more public services that higher-income households.

Here’s a handy little list:

The top 20% of household income pay 69.3% of taxes
The middle 60% pay 29.7%
The bottom 20% pay 0.8%

This flies in the face of the inane argument that “the rich pay no taxes.” I still hear this all the time – that somehow, rich people are able to screw the government with impunity. They have some magical “pay no tax” card or something.

I read another article several years ago (I can’t find it anymore, but I think it was a CNN article too), that examined this theory and proved that it was ridiculous. They interviewed accountants and experts to try and determine how people could avoid paying taxes. They found out that the IRS is, in fact, a phenomenally efficient and ruthless beast, and you’re gonna pay taxes to them, no matter how hard you try not to. The closest CNN could come was some theory where you moved all your money offshore, and moved yourself along with it. Even then, experts were split on if this might be worth the trouble. (In the end, it seems the most efficient way to avoid paying taxes is to not make much money and let “the wealthy” pay your share of taxes…)

Despite the accusations of routine tax avoidance, the reality of being wealthy is quite sobering – in fact, you send the U.S. government a lot of money.

I have a friend, we’ll call Doug. Doug is rich. He has a lot of money – I would guess he’s worth well into the seven figures. He lives in a nice house, and drives a nice car, and can buy pretty much whatever the hell he wants (though he’ll deny this fact all day long).

Doug got this way through astounding hard work and sacrifice. His life is getting easier as he gets older, but he worked 12-hour days, six days a week for a long time to build his company. He built it from the ground up at huge personal risk to himself, and he currently employees 20 or so people, paying them good wages. He’s gone through lean years (2008 was the leanest, he tells me), and good years, and has continued to push his company forward not through magic, but rather through nothing but relentless hard work.

Along the way, I’ve learned a lot from him. Doug is a rare businessman who is genuinely concerned about developing the people around him. He takes the time to work with his employees to make them better at what they do. He enjoys passing on his experience, and mentoring others. I’ve been one of the beneficiaries of this, and it’s been an amazing thing for my life and career.

And what is Doug’s reward for all this? He gets to pay a crapload of taxes. Doug pays almost half his income to the government. He pays many times more in income taxes than the average worker in South Dakota earns, period. And these aren’t nice, convenient payroll deductions. No, Doug has to write the government a check every quarter – a huge check, the kind that leaves a knot in your stomach. The amount of taxes that Doug pays would be enough for a family of five or six to live on quite luxuriously.

Doug has no special “pay no tax” card. Not surprisingly, he also has no thank you card from the U.S. government that says:

Thank you, Doug. Thanks for taking the risk to build that company and employ all those people. Thanks for working so hard to generate real economic benefit for your community and your state and allow all those people to put food on the table and a roof over their families heads.

No, all Doug has are canceled checks from the government – any one of which would probably be one of the largest personal checks I am likely to handle in my lifetime – and politicians who glibly imply that Doug is a selfish freeloader and really should pay even more.

I’m ranting now, but I get a little riled up at politicians’ attempt to demonize the wealthy. For the record, I’ve never personally met a wealthy person who was simply given all their money. I’ve also never met a wealthy person who made their money by exploiting or injuring other people. For all the demonization of “the wealthy,” you’d think they were all Paris Hilton or Bernie Madoff.

Yes, I’m sure those people exist, but I haven’t met them and I’d venture a guess that they’re a vast minority of wealthy people. On the other side of the coin, I’ve met Doug, and I’ve seen what he’s done with his life, and the lives of the people who have benefited from his vision, risk-taking, and effort.

So, whenever I hear the phrase “tax cuts for the wealthy” spit out of some politician’s mouth with venom normally reserved for Satan himself, I get a little pissed off. The wealthy I know are not evil people. They’re hard-working, salt-of-the-Earth people who care about their communities, care about their employees, and have worked hard to build something worth building only to be rewarded with paying a vast majority of taxes for the entire country.

Maybe these people deserve a tax cut.