Politicians exploit public ignorance. Few areas of public
ignorance provide as many opportunities for political demagoguery as taxation.
Today some politicians argue that the rich must pay their fair share and label
the proposed changes in tax law as tax cuts for the rich. Let’s look at who
pays what, with an eye toward attempting to answer this question: Are the rich
paying their fair share?
According
to the latest IRS data, the payment of income taxes is as follows. The top 1
percent of income earners, those having an adjusted annual gross income of
$480,930 or higher, pay about 39 percent of federal income taxes. That means about
892,000 Americans are stuck with paying 39 percent of all federal taxes. The
top 10 percent of income earners, those having an adjusted gross income over
$138,031, pay about 70.6 percent of federal income taxes (https://tinyurl.com/yddvee2o).
About 1.7 million Americans, less than 1 percent of our population, pay 70.6
percent of federal income taxes. Is that fair, or do you think they should pay
more? By the way, earning $500,000 a year doesn’t make one rich. It’s not even
yacht money.
But
the fairness question goes further. The bottom 50 percent of income earners,
those having an adjusted gross income of $39,275 or less, pay 2.83 percent of
federal income taxes. Thirty-seven million tax filers have no tax obligation at
all. The Tax Policy Center estimates that 45.5 percent of households will not
pay federal income tax this year (http://tinyurl.com/h8ks4ge).
There’s a severe political problem of so many Americans not having any skin in
the game. These Americans become natural constituencies for big-spending
politicians. After all, if you don’t pay federal taxes, what do you care about
big spending? Also, if you don’t pay federal taxes, why should you be happy
about a tax cut? What’s in it for you? In fact, you might see tax cuts as
threatening your handout programs.
Our
nation has a 38.91 percent tax on corporate earnings, the fourth-highest in the
world. The House of Representatives has proposed that it be cut to 20 percent;
some members of Congress call for a 15 percent rate. The nation’s political
hustlers object, saying corporations should pay their fair share of taxes. The
fact of the matter — which even leftist economists understand, though they
might not publicly admit it — is corporations do not pay taxes. An important
subject area in economics is called tax incidence. It holds that the entity
upon whom a tax is levied does not necessarily bear its full burden. Some of it
can be shifted to another party. If a tax is levied on a corporation, it will
have one of four responses or some combination thereof. It will raise the price
of its product, lower dividends, cut salaries or lay off workers. In each case,
a flesh-and-blood person bears the tax burden. The important point is that
corporations are legal fictions and as such do not pay taxes. Corporations are
merely tax collectors for the government.
Politicians
love to trick people by suggesting that they will impose taxes not on them but
on some other entity instead. We can personalize the trick by talking about
property taxes. Imagine that you are a homeowner and a politician tells you he
is not going to tax you. Instead, he’s going to tax your property and land. You
would easily see the political chicanery. Land and property cannot and do not
pay taxes. Again, only people pay taxes. The same principle applies to
corporations.
There’s
another side to taxes that goes completely unappreciated. According to a 2013
study by the Virginia-based Mercatus Center, Americans spend up to $378 billion
annually in tax-related accounting costs, and in 2011, Americans spent more
than 6 billion hours complying with the tax code. Those hours are equivalent to
the annual hours of a workforce of 3.4 million, or the number of people
employed by four of the largest U.S. companies — Wal-Mart, IBM, McDonald’s and
Target — combined (http://tinyurl.com/y9dvbzja). Along with tax
cuts, tax simplification should be on the agenda.
Walter E. Williams is
the John M. Olin distinguished professor of economics at George Mason
University, and a nationally syndicated columnist. To find out more about
Walter E. Williams and read features by other Creators Syndicate columnists and
cartoonists, visit the Creators Syndicate web page.
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