Recently, we've been studying situations where one can exclude income from their gross income in tax (class). In many cases, this requires an analysis of the facts and circumstances surrounding the income to come to a conclusion. I've been finding that most of these analyses don't end in a firm "this should be excluded," but rather, an "I'm comfortable excluding this." Akin to this analysis, I'm comfortable taxing the rich.
When discussing tax policy, there seem to be a couple camps. There's the progressives, seeking a more progressive bracket system, with high-income earners paying more and low-income earners paying less. This has ultimately been our system since its inception and I don't see this changing. Of course, there is also the argument that we should have a flat tax, as apparently it would be more simple. However, I don't see a world where we pass a flat tax and then just simply apply it to everyone without any exceptions. That's silly for a lot of reasons.
Yet, at the heart of this argument is that the rich pay way more taxes in terms of total amount than the rest of us. As of 2007, the top 1% of taxpayers (Federal Income Tax that is) paid about 40% of all income tax. In contrast, the bottom 50% paid about 3% of all income tax. Is this unfair? Sure. I can't argue with that. Generally, numbers don't lie. Moreover, they sure don't lie with margins like that. However, sometimes life's not fair.
I feel as if one very important consideration is left out of this discussion. Sure, high earners pay more than the low earners, but I want to know who's got more money. Because really, I may feel that disproportionate taxes are unfair, but if we're comparing a group with a disproportionate amount of the wealth with a group with what essentially amounts to no wealth... my heart strings are not exactly pulled by our high earners. And as a matter of fact, this is exactly the case.
As it turns out, the top 1% have around 35% of the nations wealth (measured in net worth). The next 19% of highest earners control another 50% of the wealth. Ultimately leaving the other 80% of people in the US with a paltry 15% of the wealth. Moreover, from 2001 to 2007, the top 1% of earners saw their average income rise by about 60%, which ends up being around $500,000. As for bottom 90% of earners, their income only increased by about 4%, or about $1,200.
So, while I understand the argument for a fair (meaning equal) tax divided among us, I don't believe this yields the best outcome for our country. I think these numbers tell a story of a large group of Americans that already have extremely reduced buying power. I think that the bottom 80% (which sounds so ridiculous when I write it) need some kind of subsidization in their lives. Moreover, if they don't need it, I bet they would at least like it. And, in the worst case scenario, this group surely doesn't deserve to have their taxes raised.
With that being said, I'm not entirely sure if the top 10% would even notice a difference. Do they spend all their money? Obviously not, given that it is concentrated. It's clearly not moving back out into the economy in any significant amount. I doubt they really need to penny pinch. Would more taxes really cause a pain for this group? Or is this argument about fairness merely some fight for an abstract principle with no real world consequence. I'm a real-world guy, so this is important to me.
So, regardless of the inherent unfairness of taxing the rich at a higher rate, there is a social utility in this type of scheme given the economic arrangement of our country at the moment. Also, see this.
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