I’m for increasing taxes on “the rich” for the same reason Willie Sutton robbed banks: “That’s where the money is.”
I do not resent people for being rich and have no desire to “punish them for being successful,” as conservatives charge. Particularly if rich folks have done something worthwhile to earn their money, like inventing Google, I think they should have at least three really big homes, five cars, a yacht, lots of money for vacations, and access to a private jet so they don’t have to deal with the rest of us.
Furthermore, I don’t think it’s immediately clear that they are not paying their “fair share” of taxes now, as liberals charge. After all, the top 1% pays nearly 40% of federal income taxes, and the top 5% (President Obama’s definition of the rich) pay more than 38% of all taxes – federal, state and local. Those are pretty good shares for such a small group. What would be a fair share for them?
Citizens for Tax Justice (CTJ) recently calculated that in 2008 the top 5% received about 36% of all income in the U.S. and paid 38% of all U.S. taxes. So, if you get more than a third of all income, you should pay at least that much of the taxes, and the rich are currently doing that. But our long-standing moral concept of fair taxation is that those who receive more should pay a higher share of their income because they can afford to. The easiest way to see this is to use the conservatives’ concept of taxes as punishment. Using CTJ’s numbers for 2008, ask yourself the following question:
Who is “punished” more by their total tax burden: the family who earns $66,000 and pays about $20,000 in taxes or the one who earns $1.4 million and pays some $400,000 in taxes?
The first family’s $66,000 is the average gross income of the fourth quintile of taxpayers – those from the 60th to 80th percentiles in the income scale, earning roughly from $60,000 to $90,000. The second family’s $1.4 million is the average for the top 1%. If you look at what is left after each family pays all their taxes, it’s clear that the $20,000 from the first family is a much heavier burden. Depending on the size of the family and where they live, it could mean the difference between having what the Economic Policy Institute calls a “basic standard of living”and not. On the other hand, we could double the amount of taxes on that top-1% family, and they would still have $600,000 — more than enough to live very handsomely regardless of where they live and the size of their family. Even doubling their tax burden, they would still be punished less than the $66,000 family.
The idea of paying a higher share if you can afford it is the basic principle of progressive taxation. And the shocking thing about the numbers above is that though the federal income tax is progressive, the other taxes we pay are not – the federal payroll tax, most state income taxes, all sales taxes, and even property taxes. Thus, when CTJ calculated total tax burdens at all levels of government, that average “middle class” family at $66,000 paid nearly the same share of its income (30%) in taxes as the average millionaire family (30.9%)
People in the bottom quintile get even more punishment. They had an average gross income of $12,000 in 2008, according to CTJ, and while these folks famously pay nothing in federal income taxes, they paid almost 7% of their meager incomes in payroll taxes and nearly 12% in state and local taxes. Even though they pay a much lower share of their income in taxes (18.7%) than either the middle-class or the millionaire families, I’d argue that the $2,200 they did pay is dramatically more punishing than either the $20,000 or the $400,000 the other families paid.
What this means is that to adequately share tax punishments, we need to make the federal income tax much more steeply progressive than it is in order to offset the punishing effects of all the other flat-rate taxes everybody pays.
What’s more, if you want to do all the things in President Obama’s 10-year, after-the-recession-is-over budget (and I do), we’re going to need to raise taxes on somebody, and the President has pledged not to do that on anybody with less than $250,000 in income. Fortunately, the Institute for Policy Studies (IPS) in early April released a report that provides a menu of tax increases primarily on the top 5% that would produce more than “$450 billion in revenue from those with the greatest capacity to pay.”
The study, titled Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly, is a bit on the angry side about income inequality. The authors are especially exercised about the top 1% increasing its share of total income (before taxes) from about 11% in 1986 to about 22% now. That’s more than $1 trillion transferred from the rest of us to them every year. The IPS tax proposals are all economically sound ones that have been proposed before, but having them all in one place with the amount of revenues each can be expected to raise is highly convenient. You may or may not share the authors’ moral outrage at “the Great Tax Shift” since 1980, but they clearly show where the money is and how to get it. Willie Sutton would have appreciated that practical approach.