Apr 14, 2010

Who Should Pay More in Taxes? The Rich, or the Rest of Us?

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No doubt you've heard talk show hosts and media people on TV and radio getting outraged at the fact that only 47% of Americans paid taxes this year. But look closer at that 47 % number, says David Leonhardt of the New York Times. It's not accurate to say that because of the growing gap in income (which is why so many people pay no taxes) the rich are somehow carrying the load for the rest of us in a way that's unfair or overburdening.

As Leonhardt points out:

State and local taxes, meanwhile, may actually be regressive. That is, middle-class and poor families may face higher tax rates than the wealthy. As Kim Rueben of the Tax Policy Center notes, state and local income taxes and property taxes are less progressive than federal taxes, while sales taxes end up being regressive. The typical family pays a lot of state and local taxes, too — almost half as much as in federal taxes.

There is no question that the wealthy pay a higher overall tax rate than any other group. That is an American tradition. But there is also no question that their tax rates have fallen more than any other group’s over the last three decades. The only reason they are paying more taxes than in the past is that their pretax incomes have risen so rapidly — which hardly seems a great rationale for a further tax cut.

So we can we do about our budgeting problems? How can we prevent cutting services in federal programs and military spending? Leonhardt, again:

The answer is that tax rates almost certainly have to rise more on the affluent than on other groups. Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group. At the same time, their incomes have soared, and the incomes of most workers have grown only moderately faster than inflation.

So a much greater share of income is now concentrated at the top of distribution, while each dollar there is taxed less than it once was. It’s true that raising taxes on the rich alone can’t come close to solving the long-term budget problem. The deficit is simply too big. But if taxes are not increased for the wealthy, the country will be left with two options...It will have to raise taxes even more than it otherwise would on everybody else. Or it will have to find deep cuts in Medicare, Social Security, military spending and the other large (generally popular) federal programs.

One more question for Leonhardt: why, exactly, do talk show host and big media figures spend so much time talking up this 47% number as if the rich are paying far too much already? As Leonardt points out:

Well, it’s hard not to notice that the talk show hosts themselves tend to be among the very wealthy.

No doubt, like the rest of us, they don’t particularly enjoy paying taxes. They are happy with the tax cuts they have received lately. They would prefer if other people had to pick up the bill for Medicare, Social Security and the military — people like, say, firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers.

So who should really pick up the bill for these things? The rich, who are making more than ever and paying less in taxes, or the rest of us--barely keeping up with the cost of living in today's tough economic climate? Someone clearly needs to pay their fair share.

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