Politicians never seem to have much trouble telling us they want to raise taxes. It seems to come as naturally to them as breathing does to the rest of us. They do their level best to keep the spotlight on “the rich,” of course, who they say must “pay their fair share.” But what do politicians hardly ever say? They hardly ever say who “the rich” are. And when they do, they usually point to multibillionaires while meaning people with considerably less. What do they also never say?
They never say what a “fair share” is. It really just means “more.” Who would’ve thought.
This leaves a problem for the class warfare class, because it is these same rich people who fund their political campaigns. And as if that weren’t bad enough, most Congressmen and Senators are rich themselves. The two who yell the loudest about taxing the rich, Bernie Sanders and Elizabeth Warren, are worth $2.5 million and $12 million respectively. What are the odds that these two, and all their cronies in Congress, would bite the hands that feed them? What are the odds they would bite their own hands?
We do well to remember 1988. George H. W. Bush, in accepting the Republican nomination for the presidency made his point perfectly clear. People would pressure him to raise taxes, but when that happened he would say, he claimed, “Read my lips. No new taxes.” All things considered, that’s a pretty easy promise to make, but a much harder promise to keep. It wasn’t long before Bush broke his promise, but in doing so he only went after “the rich,” signing into law a 10 percent luxury tax on things rich people buy – yachts, private planes, and expensive jewelry.
The tax was supposed to raise more than $30 million in additional revenue, but it didn’t raise much of anything. The rich simply went elsewhere to purchase their luxuries. Entrepreneurs and the working class paid, and they paid dearly as the tax destroyed almost 10,000 jobs in the boating, aircraft, and jewelry industries. Meanwhile, foreign companies in these industries made out like bandits. And that’s the difference between the rhetoric and the reality of taxation.
We can dig deeper still into tax reality through the Congressional Budget Office (CBO), which asks Americans how much they earn and how much they pay in federal taxes. Breaking down those answers by income level provides some valuable insight into who is and isn’t paying their “fair share.”
To sidestep technical problems like write-offs and deductions, wages versus interest income, and payroll versus capital gains taxes, the CBO lumps together into a single pile all the federal taxes people actually pay: income taxes (net of the Earned Income Tax Credit), payroll taxes, corporate taxes (including capital gains taxes), and excise taxes. Into another pile, the CBO places the market income people earn from all sources: wages, salaries, employer-paid benefits, interest income, business income, capital gains, rental income, deferred income, and other sources of non-governmental income. CBO then divides the first number by the second to get people’s average effective tax rates. The average effective tax rate is the fraction of people’s total incomes that they actually pay to the IRS.
The CBO’s latest numbers don’t tell us what is fair; but they do tell us who is paying what. While politicians avoid this the way vampires avoid garlic, knowing what people actually pay is the first thing we need to determine in any discussion of what’s “fair.”
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