Enough Is Enough – Stop the Stupidity! Learn the Truth About Government Spending & Taxes

I am disgusted with the politicians in Washington.  This battling and posturing do no one any good.  The results of the recent Pyrrhic debacle showed up on world markets as doomsday.  Trying to pit Americans against one another is insidious and ugly.  I have heard enough about “millionaires should pay their fair share,” and “these measures put all the burden on the people who can least afford it.”

In plain language, cutting spending means fewer benefits from the government for people who vote.  Raising someone else’s taxes sounds very tempting, especially targeting “millionaires with their jets,” and giant, profitable, villain, oil corporations, that are using “loopholes” and “write-offs” to avoid taxes, and sending all the good jobs overseas to boot.

A lot of political rhetoric seems aimed at creating class hatred, and barriers between so-called “rich” and “poor” people.  Politicians are fond of disparaging successful Americans, implying that they are somehow dishonest, uncaring, evil, and greedy for not sharing more of their wealth with our government.  On the other side, politicians seem to say that less successful Americans would be helpless victims of the rich, if it were not for the championship, and protection of the federal government.  A fair person puts this pandering aside and looks at who is paying for the government.

Do you really know how the government spends money and who pays for it?  Well try this on.

We do not need to guess about government spending or taxes.  The IRS provides good information on their websites.  Here is the IRS chart for the 2009 budget, in billions of dollars.  In this example, the government spent 40.2% more than it collected in taxes.  The deficit for 2009, is 1.4 trillion dollars

This chart shows how much the federal government collected from each type of tax they levy.  They collected 2.3 trillion dollars.

*Source Internal Revenue Service

Only 50% of total taxes come from personal income tax.  The rest comes from other taxes.

Corporations pay taxes too.

When we pay for gasoline, telephone, internet, and cable TV, excise tax is included in the price.  http://www.irs.gov/pub/irs-soi/histab20.xls

When a wealthy person makes large gifts, or dies with a large estate, the government collects Gift & Estate taxes.

Who really pays taxes?

Corporations pay 29%

Corporations pay 29% of the total tax bill for the USA.  In addition to income tax, they match the amount withheld from employee paychecks for Medicare and Social Security.  They pay all of the Federal Unemployment Taxes for their employees.  Think of how much gasoline, telecommunications, airline tickets, and other excise taxed items corporations buy.

Top 1% pay 20%

Would it shock you to find out that the people in the top 1% of individual taxpayers (those making more than $340,000 in a year, including all the millionaires we hear about) pay 20% of the total.  These 1.4 million taxpayers pay an average of $332,000 per return.

Top 2-5% pay 10%

The next 2-5% of taxpayers are people who earn between $140,000 and $340,000 per year .  This 4% of taxpayers (5.6 million returns) pays 10% of all taxes, averaging $44,000 per return.

Together, the top 5%, 7 million Americans,  pay 30% of the total tax burden, more than all the corporations, put together.

Top 5-10% pay 7%

The next 7 million people earn $100,000 to 140,000.  They are 5% of all taxpayers; they pay 7% of total taxes, averaging $23,000.

Top 10-25% pay 13%

The next category includes 21 million returns – 15% of all taxpayers.  They make $60,000 to $100,000 per year and pay an average of $15,000 per return, 13% of the total tax bill.

Top 25-50% pay 14%

The next 25% of taxpayers (35 million) earn between $33,000 and $60,000 per year.  They pay 14% of the taxes, and average $9,000 per return.

The Other 50% pay 7%

The other 70 million taxpayers, make under $33,000 per year, and average $2,000 per return (mostly payroll and excise taxes).  They pay 7%.

Here is the IRS analysis of effective tax rates by income bracket:  https://2thinkis2be.wordpress.com/2012/06/23/for-those-who-doubt-irs-income-tax-analysis-2009-by-income-bracket/

Is This Fair?

Unfortunately, the U.S. Government does not publish its spending by taxpayer.  I imagine the proportion of benefits does not match the proportion of taxes.

  1. Numbers may not be exactly comparable.  US Government budget (fiscal) years are Oct 1 – Sep 30.  Taxes are collected based on the calendar year.
  2. Number of Returns and % Paid are 10-year averages for 1999-2008
  3. Corporations Pay the Employer portion of Employment taxes, plus unemployment taxes, and a large proportion of excise taxes.
  4. Estate & Gift Taxes were allocated to the top two income brackets.
  5. The table uses IRS 2009 revenue numbers.

 

 

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9 Replies to “Enough Is Enough – Stop the Stupidity! Learn the Truth About Government Spending & Taxes”

  1. Your analysis may be valid, but it’s incomplete and misleading:

    Payroll taxes are disproportionately high for those making less than the “cap”, which means the bottom 90% of earners. These people are paying 15.3% (yes, I have included the “employer’s” share because that money would otherwise be available for salaries) of the GROSS income, which means far more than 15.3% of their adjusted income used in the charts. Since gross income isn’t given, we can’t say how much it is, but it’s more than 15.3% of the numbers used in your calculations.

    The top 10% of earners are over that cap, and therefore, pay proportional smaller amounts of their income, it’s still a high percentage for those in the 90%-95% range, but above there, it becomes small.

    Furthermore, if we assume that on average, the bottom 90% pay only half the maximum, and the top 10% pay the full amount, then that’s 45 units from the bottom 90%, and 10 units from the top 10%, for 55 units. The top 10% pay only 18.2% of those total payroll taxes, the bottom 90% pays 82.8% of those taxes that represent 36.8% of the federal taxes.

    And, since excise taxes are primarily on consumption of goods, those taxes are coming primarily from the lower 90%, probably with a similar 80/20 split to above.

    That changes your calculations rather dramatically.

    Finally, if you move from federal to state, there are sales taxes, property taxes, auto registration, etc. Once again, these taxes are disproportionately higher for lower income persons who must spend most or all of their income on taxed items.

    While there are some at the lowest end who end up paying little tax, no tax, or even negative amounts, the preponderance of the taxes are actually being paid by the “middle class”, not by those earning the most, and certainly not by those with the most accrued wealth.

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    1. Hi Geoff,

      Thanks for your comments.

      The initial analysis includes all taxes from all sources. I do not agree with your choice to include the employer’s payroll taxes as part of the tax paid by the employees. Employers have no choice but to pay the tax, just like the employees. With that logic, other employer expenses related to employment, such as workers compensation, state unemployment taxes would qualify as “available for wages” too. Think of the Self-Employed, they pay both halves of the tax. Do they get the second half as compensation? The extended-to-the-ridiculous version of this argument is that the consumer pays all taxes by buying what they buy. That begs the question, “why bother with tax analysis?”

      I also believe you may be mistaken about who pays the different excise taxes on manufacture, consumption, and transportation. Businesses and the wealthy manufacture, consume, and transport more than working or middle class people, would you agree? Businesses pay all kinds of excise taxes; check out this IRS publication about how much they collected from each type of excise tax.
      http://www.irs.gov/pub/irs-soi/histab20.xls

      Next, I included the 2009 (latest available) IRS statistics on effective (vs. marginal) tax rates at the bottom of the blog. Take a look.
      https://2thinkis2be.files.wordpress.com/2012/06/tax-analysis-20091.xls

      Because there are 50 states with all types and variants on taxes, I decline to try that analysis. The states get their money however they get it.

      In summary, feelings are not facts, and “fairness” is a feeling evidenced by the way different people talk about it. Facts can be interpreted differently, but they cannot be converted into something other than what they are. In this case, you have the IRS statistics on income taxes and excise taxes. Interpret they however you like. That will not change the numbers in the spreadsheets.

      Again, thank you for taking the time to read and respond to my blog, “Enough Is Enough – Stop the Stupidity! Learn the Truth About Government Spending & Taxes.”

      Von

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      1. The fact that self employed people have to pay the “employer’s share” supports my point. They have to charge more for their time to compensate for the taxes they have to pay. The fact of the matter is that if employers didn’t pay 7.65% in payroll taxes and the employee had to pay them all, wages would be ~7.65% higher. Either way, it reduces the after tax income of the employee, and either way, the employer is paying the the same amount for labor.

        People are the largest user of products and services, not businesses. People pay the majority of the excise taxes.

        As for state taxes, I didn’t ask you to perform an analysis, so there is nothing to decline. I simply pointed out that it’s one aspect of your analysis that is incomplete, and therefore, misleading.

        I never addressed feelings. I addressed only facts, and pointed out several flaws in your analysis that make it incomplete, and therefore, misleading, regardless of the source of your numbers. I didn’t challenge the numbers, I challenged your analysis, and therefore, your conclusions.

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  2. Hi Geoff,

    I made a mistake entering the debate on who really pays which taxes.
    I thought that was a given based on tax law.

    You have rational beliefs that you hold strongly.
    No one can change another person’s strongly held beliefs.

    I do not understand how I misled my readers? What am I missing?

    All I did was look at the IRS data and relate it in a blog.
    I even included the links to the IRS sites; that way anyone can see the facts for themselves.
    Then they could point out factual errors in my blog.

    1. Do you disagree with the way the government assesses, collects, reports, and analyzes tax data?
    2. Do you feel IRS is misleading when it assigns taxes to:
    o Corporations
    o Partnerships
    o Businesses
    o Individuals
    o Trusts
    o Estates
    3. Do you feel that IRS statistical analyses are misleading?
    4. Do you feel the IRS report on excise taxes is misleading?

    The whole point was the 40% borrowing; the tax burden issue is a red herring to keep us fighting among ourselves.
    Instead we should be making our government leaders face and fix this mess we are building for our grandchildren.

    Von

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    1. Yes, the way the IRS categorizes it is deceptive, in the sense that it makes the individual tax burden appear smaller. Even ignoring the portion of payroll taxes paid by employers, even separating out the portion paid by the workers is deceptive. No one in their right mind would say that portion isn’t part of personal income tax. Any analysis based upon using those categorizations is going to be equally misleading, and it contributes misinformation to the “class warfare”, 99%/1% discussion, further driving people apart with misleading statistics.

      Yes, the deficit spending and the interest on the debt are the real problem, but we’re not going to be able to resolve those until we can get past the debate about who is/isn’t paying “their fair share”. And to get past that, we have to stop publishing and believing misleading statistics that each side uses to show why the current system isn’t fair.

      Is it fair that the people controlling 90% of the wealth (money, land, etc) pay less than 90% of the cost of running the country? Is it fair that corporations pay billions of dollars in bonuses to executives while laying off workers and having a net loss? Or while their stock loses value costing the investors? Or while taking $700B in bailouts from the Fed?

      Is it fair to pay able bodied people welfare for sitting at home, or spending all day in a bar or pool hall?

      Is fair to provide them with food stamps and health care? Is it fair to reduce someone’s SS or welfare benefits by 50% of any money they earn, regardless of how low they’re pay rate is (e.g. they’re working for “minimum wage” to try to get out of the system, and we deduct half of that off their benefits, so they’re really working for $3.13/hr, minus taxes)? Where is the incentive to work your way out of the system?

      “Fair” isn’t the question we should be discussing. What’s the ethical thing to do? What would actually help people get out of poverty, homelessness, and hunger? What would help people get a better job, where they could be productive and pay taxes?

      Fair is a red herring. There is no such thing as fair, there is only what works (for everyone), and what doesn’t work.

      Like

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