According to estimates by the Tax Policy Center, slightly over 45 percent of American households have no federal income tax liability.

What Is the “Fair Share” of Taxes?

by | Mar 1, 2016 | Taxation

Presidential hopefuls Hillary Clinton and Sen. Bernie Sanders, along with President Obama, say they want high-income earners, otherwise known as the rich, to pay their fair share of income taxes. None of these people, as well as the uninformed in the media and our campus intellectual elites, will say precisely what is the “fair share” of taxes. That is because they would look ignorant and silly, so they stick with simply saying that the rich should pay more. Let’s you and I take a peek at who pays what in federal income taxes.

%

Top 1%

%

Top 5%

%

Top 10%

%

Bottom 50%

Above: Percentage Paid in Federal Income Taxes By Income Bracket

The following represents 2012 income tax data recently released by the Internal Revenue Service, compiled by the Tax Foundation (http://tinyurl.com/j5yr8cd). The top 1 percent, 1.37 million taxpayers earning $434,682 and more, paid 38 percent of all federal income taxes. The top 5 percent, those earning $175,817 and more, paid 59 percent. The top 10 percent of income earners, those earning $125,195 and up, paid 70 percent of all federal income taxes. The top 25 percent, those earning $73,354 and up, paid 86 percent. The bottom 50 percent, people earning $36,055 and less, paid a little less than 3 percent of federal income taxes. According to estimates by the Tax Policy Center, slightly over 45 percent of American households have no federal income tax liability.

With this information in hand, you might ask the next person who says the rich do not pay their fair share of taxes: Exactly what percentage of total federal income taxes should the 1-percenters pay? I seriously doubt whether you will get any kind of coherent answer. By the way, since 1-percenter income starts at $435,000, it might be pointed out that $400,000 or $500,000 a year is not even yacht or Learjet money. Plus, if one has two kids in college, a big mortgage and car payments, I doubt he would declare himself rich.

“According to estimates by the Tax Policy Center, slightly over 45 percent of American households have no federal income tax liability.” — Walter Williams

Our demagogues also claim that corporations do not pay their fair share of taxes. The fact of the matter, which even leftist economists understand but might not publicly admit, is corporations do not pay taxes. An important subject area in economics, called tax incidence, says the entity upon whom a tax is levied does not necessarily bear the full burden of the tax. Some of the tax burden can be shifted to another party. If a tax is levied on a corporation, and if the corporation hopes to survive, it will have one of three responses to that tax or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. In each case a flesh-and-blood person is made worse off. The important point is that a corporation is a legal fiction and as such does not pay taxes. As it turns out, corporations are merely tax collectors for the government.

Politicians love to trick people by suggesting that they will not impose taxes on them but on some other entity instead. To demonstrate the trick, suppose you are a homeowner and a politician tells you that he is not going to tax you, he is just going to tax your land. You would easily see the political chicanery. Land cannot and does not pay taxes. Again, only people pay taxes.

Leftist politicians often call for raising the death tax, euphemistically called inheritance tax. The inheritance tax brings in less than 1 percent of federal revenue. It is on the books because it serves the interests of jealousy, envy and our collective desire to tax the so-called rich. The effects of inheritance taxes are economically damaging. It has this impact because in order for people to pay the death tax, they often must sell producing assets, such as farms, factories, stocks and bonds. These are high-powered dollars that are shifted from productive activity to government consumptive activity.

Too many Americans are ignorant of tax issues and thus fall easy prey to the nation’s charlatans and quacks.

Walter E. Williams is a professor of economics at George Mason University. In 1980, he joined the faculty of George Mason University in Fairfax, Va., and is currently the John M. Olin Distinguished Professor of Economics. He is also the author of Race and Economics: How Much Can Be Blamed on Discrimination? and Up from the Projects: An Autobiography. Williams participates in many debates and conferences, is a frequent public speaker and often gives testimony before both houses of Congress. This editorial was made available through Creator's Syndicate.

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The views expressed represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine.

1 Comment

  1. Fortunately, some smart people in ancient times invented a way to calculate one’s share.. math-algebra. The equation calculated how much more PERCENTAGE a billionaire should pay in tax than a millionaire. The PC rhetoric presented now, as “fair share” is psuedo-logic, and anti-math. A poorer person must feel the same sting via taxes that a wealthy person feels, Even if we must first increase their welfare by 50% to tax it by 33% (do the math).

    A simpler way for your progressive friends to understand this, is my “island village analogy”… On this imaginary island, of 100 people..there are some strong young males, and weaker old people. Now, when it becomes time to assign the needed chores of this village, the stronger may work lets say 10 hours of rock moving, harder labor. But the weaker elderly, should work a lighter job, peeling potatoes or making soup, but should not be spared the complete 10 hours of light work.

    This is not a min-archist libertarian society, it is more like our ancestral protective village clans. Most likely a quasi government based upon cooperative defense and survival strategies. I do not advocate this actual solution or desire this communal socialist tribal form of government.. I use it merely to illustrate what our ancestors may have considered fair share. Heck, even the yougins were expected to contribute their fair share to hunting, gathering, and other ancestral chores.

    Any counterpoints ???

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