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The Politics of Tax Policy
You Don’t Get What You Pay For

 

April 15, 2003

 

When President George W. Bush unveiled his Growth and Jobs Plan on January 7, 2003 he immediately rekindled the always-smoldering debate on who pays their fair share of taxes in the United States and by what means. 

 

Senate Democratic Leader Tom Daschle (D-SD) and incoming House Minority Leader Nancy Pelosi (D-CA), as if on cue, launched the first salvo in the still unresolved class warfare on tax policy before the President even made his address.  Pelosi accused the President of, “…wheel(ing) in some favorite tax breaks for the high-end that (the Republicans) they're so fond of.”[i]

Senator Daschle, without the aid of any firing synapses, unilaterally condemned the Bush tax plan as, “a stimulus for the rich and a sedative for the rest.”[ii]

By contrast, the Republicans claim that every American will benefit from the President’s proposal, especially those who pay taxes, invest in the stock market and/or own small businesses. 

Daschle et al, as the partisan purveyors of B-grade disinformation, certainly seem to relish playing in the mud that they sling so well.  But, what better way to obscure fact behind demagogic fiction than some good old-fashioned name-calling?  But why, when the subject of tax policy is so critical to national well being, would any self-respecting Liberal want the facts kept from the light of public truth?  After all, the Democrats are the party of the middle class…or are they?      

The facts of tax policy are, and never have been, presented in consumer-friendly language.  Just who does pay the taxes in the United States?  And…to what extent?  Although the demographics of poverty, unemployment and violence are readily available, demographic information on taxpayers is not.  The addressing of these questions can certainly help one to intelligently formulate opinions regarding the fairness of the present tax policies and the myriad of new proposals. 

United States taxes or revenue collections are comprised by five segments of payers.  Dollars enter the Treasury’s coffer from (1) the Corporation Income Tax, (2) the Individual Income Tax, (3) Employment Taxes, (4) Estate and Gift Taxes and (5) Excise Taxes.  For 2001, in corresponding order, the percent (of total) of Internal Revenue collections for each of the five segments was (1) 8.8%, (2) 55.3%, (3) 32%, (4) 1.4% and (5) 2.5%.[iii]

These five segments collectively anted up over 2.1 trillion dollars for 2001.  Of this amount, 129,783,221 Individual Income Tax payers contributed $1,178,210,000,000,000 or almost 1.2 trillion dollars. 

In the very extensive database maintained by the IRS is a plethora of statistics on Individual Income Tax (IIT) payers.  One of the more interesting sets of statistics segments taxpayers by AGI[iv] (adjusted gross income) levels and reports on the percentage of total income taxes paid by each segment.   

There are five segments of AGI grouping that cumulatively account for the top 50% of all IIT payers.  A floor (i.e., your AGI is at least this much) AGI of $27, 682 places the payer in the top 50% of all IIT payers and that top 50% accounts for 96.09% of all IIT taxes paid.  In ascending order, an AGI floor of $55,225 represents the top 25% of payers and accounts for 84.01% of all IIT dollars, $92,144 is the top 5% and accounts for 56.47% of IIT dollars and a minimum AGI of $313,469 enters the top 1% of IIT payers with a contribution of 37.42% of all IIT collections. 

In simple terms, the top 50% of all IIT payers (those with an AGI of $27,682 and greater) pay 96.09 % of the income taxes.  Conversely, the bottom 50% of taxpayers (those with AGI’s less than $27,682) pays less than 4% of all income taxes. 

The gender segments of the U.S. population are 49.06% male versus 50.94% female.  These total population percentages are not mirrored in the payment of income taxes. 

With a total earning population of over 215 million people as reported by the Bureau of the Census[v] 51.73% of income earners are female and 48.27% are male.  Females in the top 50% of IIT payers represent 13.25% of the total population with male representation at 22.83%.  Thus, it can be extrapolated that a 2 to 1 male to female ratio shoulders the total income tax burden. 

The three major demographic components of IIT payers by race and origin are non-Hispanics Whites, Blacks and Hispanics.  For the total population of the United States, non-Hispanic Whites comprise 68.9% of the population, Blacks account for 12.7% and Hispanics are 13%.  There appears to be a great divergence in these percentages when it comes to paying taxes. 

Of the total income earning population[vi] of over 215 million people reported, 72.51% are non-Hispanic White, 12.13% are Black and 10.89% Hispanic.  Those in the top 50% of IIT payers (numbering about 78 million people) breakdown by the following: 28.96% non-Hispanic White, 3.28% Black and 2.22% Hispanic.  This top 50% is actually paying all of the taxes. 

Again, of the total income earning population, those in the bottom 50% of IIT (non) payers (numbering about 138 million people) are comprised by 43.55% non-Hispanic White, 8.85% Black and 8.66% Hispanic. 

The most striking result of this analysis is the apparent result that less than 50% of income earners are paying almost 100% of the taxes.  When effects of the Earned Income Credit (EIC) are factored into the analysis, the disparity widens even farther. 

The EIC is euphemistically referred to as a tax credit for qualifying individuals who work but have low earned income.  While it indeed is a tax credit, it is not a credit returned to those who paid the taxes.  Rather it is a transfer of dollars from those who pay the taxes to those who do not.  A childless individual can qualify for an EIC with an earned income not exceeding $10,710 per year.  By reason of qualifying factors, all who qualify for the EIC are in the bottom 50% of earners and, after any refunds, pay almost zero taxes. 

In fiscal year 2001, there were 19.3 million IIT returns claiming 32.3 billion dollars in EIC dollars[vii].   

George Bernard Shaw once speculated that, “A government which robs Peter to pay Paul can always depend on the support of Paul.”[viii]  And…when it comes to tax policy, Mr. Shaw dropped a smart-bomb. 

A recent USA Today-CNN-Gallup poll reported that 50% of Americans do not view their income taxes as being too high.[ix]  However, in a serendipitous oversight, those responsible for the poll never noted that almost 2/3 of that 50% were individuals with no positive taxation.  Somehow a burden is more bearable when it is somebody else’s. 

Most polls on taxation are similarly misleading.  Recent polling by Zogby and others have reported that small majorities of “voters” favor increased spending over tax cuts.  It is no mistake that “voters” as opposed to “taxpayers” are the subjects of these often-biased polls.  In 2001, there were 129,783,221 individual income tax returns filed.  Of this number, only 50% or 64,891,610 paid 96.09% of the taxes.  The Federal Elections Commission reports that there are about 150,000,000 registered voters.  You can do the math.   

With comparable bias, Democratic leader, Nancy Pelosi, has put forth a counter-proposal to the Bush stimulus package.  A cornerstone of the Democrat’s plan is an, “income tax rebate equal to 10% of earned income (wages and income from self employment) up to $6,000 of earnings for a couple, and $3,000 for a single person.”[x]  The Democrats reason that their, “proposal would provide tax relief to every American who works — not just those with higher incomes.”[xi]  They go on to explain that, “The major complaint about last year’s rebate was that it applied only to positive income tax liability.”[xii] 

A consumer-friendly translation of the phrase “it applied only to positive income tax liability” would read, “it applied only to people who actually paid income taxes”.  And…stepping into the dangerous territory of logic would dictate that, by definition, a rebate could only be paid only to those who had positive tax payments from which to rebate.  No doubt that the “major complaint” the Democrats refer to harkens from those who pay no taxes but demand rebates.    

In simple terms, the Democrat’s intention is to rebate money to millions of people who pay no taxes and additionally already receive billions in Earned Income Credits.  Apparently, the Democratic Party’s new definition of the “Rich” includes anybody who pays income taxes.  By that definition, you may enter rarified “rich territory” with a minimum AGI of  $27,682. 

It is ironic that the Democrats, the purported party of the middle class, appear to find that same middle class most useful for the paying of taxes to be redistributed to those who pay no taxes at all. 

If the nation’s political tax gurus really want to know if the burden is too heavy, why not just ask the jackasses carrying it? 

 

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