Taxing the 1%

I have recently seen several pictures on the web of individuals holding signs claiming they work two jobs, pay their way through college, etc… ending with some comment to the effect that the wall street protesters should quit whining and get to work, or that the few who claim to be part of the wealthiest 1% of the population, and who are more or less demanding that the government tax them more, should shut-up.

The core of their argument - as I read it- is that the wealthiest 1% of the American population already carries 50% of the tax burden, and since they are the hard working, chief job creators of the country, they and their money should be left alone, so they can use it to create more jobs and thus fix our economic woes (or at least prevent them from getting worse).

That argument is visualized in the following image. Poor Mr. 1% having to bear the same burden as the other 99%, all by his lonely self….

Looks pretty unfair, very progressive (in case you’ve forgotten, a progressive tax system is one in which the percentage of your income which is taken for taxes increases as your income increases [i.e. if you make  $10 you pay $1, if you make $20 you pay $5]. A regressive system takes a larger percentage of your income as your income decreases [if you make $10 you pay $5, if you make $20, you pay $5]. The midpoint between these two is a flat percentage [such as everyone pays 10% of their income]. The US tax structure, ignoring all loopholes, provisions etc..., is designed to be slightly progressive [the poorest pay nothing, the middle class pays a small percentage, the wealthiest pas a slightly higher percentage]).

There is a problem with the above picture however. It lacks context.

You see taxes are not a burden placed on the public, but a portion of resources (wealth) taken away. The number that really matters is percentage of income.  

Solid numbers on income distribution are difficult to come by. Percentage for the top 1% is claimed to be 50%, 80% and everything in between. Now, the lower end claims (50%) all appear to be based on 2007 numbers, and appear to include total wealth, not just income.  Numbers for 2007, income only range from sixty to seventy-five percent. Every report I could find was in agreement that the top 1% have experienced an increase in income over the past several years, while everyone else on average has experienced no change, to a slight drop in income.  So, income distribution looks something like this, (using the 70% value).

Let’s use some numbers now to see what’s going on (these are completely made up numbers. It is the percentages which are crucial here).

Let’s say there are 100 people in America, and a total wealth of $100,000. 

Then 1 of those people (we’ll call him Bill Buffet) owns $70,000,

and the remaining 99 people each own approximately $303.

Now, let’s assume a total tax burden of $20,000. 

As previously stated, Bill is paying half of it, or $10,000, 

which means his tax rate is approximately 14.3%. 

The remaining $10,000 is paid by the other 99 people, and amounts to one third of their income! 

A tax rate of 33.3%!!! 

What appeared to be very progressive is in fact regressive. Even if we assume the lower value of 60% for income distribution, then Bill is paying 16.7% and everyone else is paying 25%.

In the real world, you also have to consider that some percentage of those 99 are paying nothing (yes, some are lazy bum’s. But there are also many who are just having an extended “bad day”, whether it is medical woes, a recent job loss, and difficulty finding a new job…), which means the percentage goes even higher for the middle class.

This isn’t a matter of unfairly increasing the tax burden of the wealthiest. It is a matter of getting them to pay their fair share. Certainly, I agree with the sentiment that lazy people shouldn’t get a free ride. I don’t want to subsidize some deadbeat sitting on the couch eating Cheetos all day, but I also don’t want to subsidize Bill Buffet’s personal Jet.

 (Oh, and by the way. Wealthiest 1% don’t create most of the jobs. More than half of the jobs created are by small businesses. The middle class (Again) is carrying the bulk of the burden, on their ever shrinking share of the pie.