Fair share? The real tax rates of the 1 and the 99 percent

| May 8 2012
Christopher Cook

The effective tax rate of the 1% is 3 times higher than the entire 99%

Yesterday, we posted a comparison between the absolute dollar amount in taxes paid by the top 1% and the bottom 50%. Since the Occupy crowd and their ilk are regularly complaining about the “greed” of the 1%, and since Obama and the Democrats insist that they aren’t paying “their fair share,” it only seemed fair—oh look, there’s that word again—to look not only at percentages, but at the sheer amount of dollars involved.

The results were predictably stark: In 2009, the top 1% of income tax payers paid over 318 billion dollars.The bottom 50% paid less than 20 billion. There were 1.4 million 1-percenters and 69 million 50-percenters. This means that there were 49 times as many people in the bottom 50%, but they paid 16 times less that the 1%.

Last night, however, I was made aware of another calculation—one I hadn’t considered.

Most analysis on this subject focuses on the percent of the income tax burden borne by the various levels of the income ladder. (For example: In 2009, the top 1% payed 37% of all taxes; the top 10% paid 71%, and the bottom 50% paid 2%.) But what about the effective tax rates of these groups and how they compare?

After all, we keep hearing about how people in Warren Buffett’s rarefied income strata supposedly pay less than their secretaries. That exceptionally misleading meme is created by looking at the dividend and capital gains rate paid by the “rich CEO” and the comparing that with the income tax rate paid by the “secretary.” That is an unfair comparison for several reasons: it contrasts two different categories of taxes, the rates of which are scheduled differently AND it ignores the fact that the dividends and capital gains have already been subjected to a 35% corporate tax, so they are double-taxed.

The counter-claim is that the “rich” get a smaller percentage of their money from income, so it is unfair for them to be taxed on dividends and capital gains at only 15%. Ignoring, for the moment, the fact that that money has already been subject to a 35% corporate tax, this is also a highly misleading for another reason. Simply put, people who make this claim have painted a cartoonish picture of all  1-percenters rich” as being moguls in $2,000 suits, sitting at marble desks (beneath larger-than-life portraits of themselves or their grandfathers), earning no income but making billions in financial transactions.

Obama and the Democrats have managed to paint that picture, and the Occupy crowd have swallowed it hook, line, and sinker, but it really only describes a minority portion of the 1%. The 1% also includes managers, doctors, lawyers, sales professionals, real estate agents, artists, actors, athletes, dentists, engineers, professors, scientists, and many more. Even a few secretaries. It’s the guy who runs a small manufacturing operation with 60 employees. It’s the doctor, who after a decade of school and grueling residency, still works long, hard hours to see as many patients as possible. They’re not all cartoonish villains like Montgomery Burns or Warren Buffett. In other words, a heck of a lot of them are earning income and paying taxes on it.

We already know that the top 1% pay 37% of the income taxes, and that the $318 billion that they paid in 2009 was 16 times as much as what the entire bottom 50% contributed to America’s collective income tax bill. So what about the effective tax rate? And, since the Occupy crowd have made the dichotomy between the 1% and the 99%, why not take a look at the effective tax rates of each of those groups?

 

The 1%
1,379,822 taxpayers with an adjusted gross income of $1,324,572,000,000 paid $318,043,000,000 in income taxes.

Effective tax rate: 24.01%

 

The 99%
136,602,381 taxpayers with an adjusted gross income of $6,500,817,000,000 paid $547,820,000,000 in income taxes.

Effective tax rate: 8.43%

 

The effective tax rate of that tiny little sliver at the top is 2.9 times higher than the effective tax rate of the entire 99%!

Obama, the Democrats, and the Occupy crowd speak as if these dastardly 1-percenters are a drag on our entire economic system, and that if only they would cough up their fair share, the train would really start rolling down the tracks. As it turns out, however, they are paying far more than their fair share already, and they are one of the locomotives pulling the entire train.

This “fair share” rhetoric is extremely sinister for many reasons—not the least of which is that it is open-ended. As soon as you have established that it is okay for one group to bear a far greater share of the burden than another, and as soon as it becomes okay to demonize them for not paying even more, where does it end? What if we make the 1-percent’s effective tax rate 5 times that of the 99%? Will that be enough? How about 10 times? How about we take everything they have. After all, they’re all just greedy, cartoonish financial moguls, right?

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