Sunday, July 15, 2007

Who Pays Their Fair Share of Taxes?

The New York Times has an article today on who pays taxes and is it their fair share.

The best source for objective data on the distribution of the tax burden is the Congressional Budget Office. The C.B.O. goes beyond anecdotes and bald assertions to provide hard data on who pays taxes. One can argue about the details of its methods, but there is no doubt that it is nonpartisan and that its tax analysts are some of the best in the business.

The C.B.O.’s most recent calculations of federal tax rates show a highly progressive system. (The numbers are based on 2004 data, but the tax code has not changed much since then.) The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.

At the very top of the income distribution, the C.B.O. reports even higher tax rates. The richest 1 percent has average income of $1,259,700 and forks over 31.1 percent of its income to the federal government.

Warren Buffett claims he only pays 17.7% in taxes and that the system is unfair because of it. How does Buffett get away with paying so little in taxes when even the top 1% are paying nearly double that?

The reason lies with where one gains one's wealth. Income taxes are progressive enough, as the C.B.O. numbers show. But since Buffett receives most of his income from dividends and capital gains--which are taxed at 15%--this helps explain his lower tax rate. And, as the NYT points out, much of Buffett's wealth is directly attributable to his ownership of stock in Berkshire Hathaway.

I've always said that the people who complain tax rates aren't "fair" enough are welcome to pay as much as they think would be fair. The problem, of course, is that they don't want their tax rates to go up; they want someone else's tax rates to go up. Generous of 'em, huh?

Unfortunately, the NYT doesn't ever actually define what would be a "fair" tax rate. I'm sure many liberals think it would be only "fair" to tax people who make, say, $100k per year something closer to 50%...that is, unless they make that much. And the IRS figures which shows the percentage of taxes paid by various groups shows that almost all taxes are paid by the top 50% of taxpayers.

This is why tax cuts typically don't do much for the lowest wage earners. Simply put, if you don't make any money, you probably won't get a tax cut (although even the poorest got a raise with the increase in the Earned Income Tax Credit). It always makes me scratch my head when liberals argue about how the poor are screwed in this economy. You simply can't go lower than not paying taxes.

That's why liberals have moved the goal post to include things like insurance in their calculations of whether tax burdens are "fair." But the fact is, even people without insurance can get medical care through public health agencies. It may mean one doesn't get the nice birthing suite at the private pay hospital, but one will still get health care.

But still, we're left wondering what is a "fair" share of taxes? I've never gotten a straight answer from a liberal about what would be a fair share. The way I look at it, they learned at least one lesson from Walter Mondale: don't tell people you want to raise their taxes if you want to get elected. That's why liberals always talk about raising somebody else's taxes instead. Just pray you aren't that somebody else.