The Facts, Just the Facts

     I read and hear way too much rhetoric coming from politicos on both the left and the right. "Tax the rich," say the liberals. "They need to pay their fair share!"

     "The rich already pay most of the taxes," counter the conservatives. "Stop penalizing successful people who generate the jobs we so desperately need."

     I don't know who is right. What I do know is that whenever you read these rants and opinions, they are seldom accompanied by actual facts. A lot of people seem to choose up sides, focus on the numbers that support their point of view and ignore the other numbers And if there are no numbers, they just assert their position in stronger, more inflammatory language -- as if those who shout the loudest must be right.

     The point is, opinions are cheap. But facts are dear. Let's look at just a few facts.

     Fact:  The top 1 percent of wage earners (people now making over, roughly, $400,000 per year) take in some 20 percent of the total income in this country. They pay almost 40 percent of all federal income taxes. However, that's just federal income tax. When you include payroll (Social Security) tax and state tax, the top 1 percent contribute only 21 percent of taxes. -- Source: New York Magazine; also, see Tax Data chart below.

     Fact:  The top 10 percent (those who make over $115,000 a year) earn close to 50 percent of total income. They pay nearly 70 percent of all federal income taxes. But again, that figure does not count payroll or state taxes. -- Source: The Week Magazine and Tax Data chart

FEDERAL INDIVIDUAL INCOME TAX DATA, 2010

  
     Fact: Some 75 million households, or 46 percent of  Americans, do not pay any federal income tax. Approximately 2/3 of the no-income-tax households make less than $50,000 a year. About 1/3 make over $50,000 a year, and those people are mostly the elderly.  -- Source: The non-partisan Tax Policy Center

     The federal income tax is somewhat progressive. Higher income people do pay a higher percentage of their income in taxes. But the figures in the table above are based on Adjusted Gross Income. And people with more income have more opportunities to adjust their income down by claiming education, business or health expenses. Therefore, the table overstates the portion of income that high income individuals actually pay. Or, as Warren Buffett has admitted, rich people know how to work the system.

     Fact: The above table counts only federal income tax. It does not include Social Security tax, which costs people in the bottom 90 percent a higher portion of their income than it does the top 10 percent. According to several studies, more than half of all wage earners pay more in Social Security and Medicare taxes than they do income tax. -- Source: New York Times and elsewhere.

     In addition, state income taxes tend to be less progressive than federal taxes. Local property taxes are only indirectly progressive -- typically, the more expensive house, the higher the local tax. But a rich person who lives in a modest house (again, think Warren Buffett) pays no more than the middle-class person living in a similar abode. And of course, property taxes vary widely by state and locality. Wealthy Texans pay less in property tax than middle-class people in New York or New Jersey.

     Finally, states and local municipalities rely to a large extent on sales taxes, which again, hit poor people with the same tax rate as the high earners. Some people argue that the poor spend a higher portion of their income on taxable consumer items, and thus pay more sales tax than high income people. That's a guess, though, not a fact. Low income people spend money on food and rent, which typically are exempt from sales tax. Rich people buy expensive cars and take luxurious vacations, which are often subject to extra sales tax.

     Fact:  In the two years since the so-called end of the Great Recession, in June 2009, the inflation-adjusted median income of American families has fallen 6.7 percent, to just under $50,000. Source: Kiplinger's Magazine

     And that, to me, is the most relevant fact. People's incomes are falling. Which is why I believe -- and this is opinion now, not fact -- that while raising taxes on the top 1 percent of earners, or the top 10 percent of earners, may be the "fair" thing to do, it is beside the point. Raising taxes on top earners will not increase employment; it will not raise middle-income wages.

     For what needs to be done, read That Used to Be Us by New York Times columnist Thomas Friedman. Or the just-published The Price of Civilization: Reawakening American Virtue and Prosperity by Columbia University economics professor Jeffrey Sachs, who urges investing in education and infrastructure to help the U. S. compete in a globalized world.

     And finally, for a fun way to see if you really know the facts, check out New York Magazine's quiz Are You Smarter Than a Wall Street Occupier?