Bottom 50% of wage earners don't pay taxes--yeah, right!

Great Debates
1

My favorite right-wing idiot, Neal Boortz, came up with an especially offensive bit of lunacy today. He says, and this is a direct quote from his column, that:

“… the bottom 50 percent of income earners have been almost completely removed from federal income tax rolls.”

Now, not only is the IRS taking a nice, big bite out of my ass for regular taxes this year, they’re also dunning me for thousands of dollars for taxes on a retirement fund rollover I did three years ago which they claim was not tax exempt. As I don’t have any means of fighting this, and my income level is such that I’m always pretty much living on the edge, this will almost certainly mean that I’ll have to file for bankruptcy later this year. So I’m just a mite skeptical when Boortz says that folks like me hardly ever have to pay income taxes.

I don’t have the facts and figures to prove this idiot wrong at my fingertips, but I figure some of you Dopers out there either have them or know where to find them. And I’m sure those same Dopers would like to know what kind of misinformation some conservative pundits are propagating.

Understand something. I’m not a liberal. I don’t even freaking * like * liberals. Anybody who’s read any of my posts on the SDMB knows that. But I do happen to agree with the lefties that working people, especially low income wage earners, are getting royally screwed.

Many conservatives, Boortz among them, insist that liberals are ivory tower elitists badly out of touch with mainstream America. I think what we have here is a clear example of an elitist conservative who needs to come down out of * his * ivory tower once in a while.

You can read the column at:

Whew. There. I think my blood pressure is getting back to normal now.

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This site gives you the statistics you need. I’m sure jshore will be along shortly with a cite from Citizens for Tax Justice to tell you all about state income and sales tax. At any rate, you do need to make sure if your talking about fed income tax only (which is probably what Boortz was talking about). Everyone pays FICA, and that can be a high percentage of their total tax for low wage earners.

3

I’m in the bottom 50%…and they didn’t take me off of their rolls.

Maybe I was overlooked?

4

Well the bottom 50% of income earners probably live in China and India, and none of them pay US Feberal Tax. So I guess he must be right :rolleyes:

5

Your wish is my command.

So, first off, let us say that Boortz is right that the federal personal income tax is fairly progressive. One should keep in mind however that, other than the estate tax (soon to disappear, at least for a year) and perhaps (depending on how you figure it hits people) the corporate income tax, it is the most progressive tax we’ve got. Still, the oft-quoted statistic (that can be seen from the John Mace link) that the top 50% of earners pays 96% of the federal personal income taxes sounds somewhat less dramatic, albeit still progressive, when you note that they earned 87% of the income.

Once you start adding other taxes into the mix, the story changes somewhat. I think it is now true that something like 60% (???) of the people pay more in payroll (social security and medicare) taxes than in income taxes. And, that tax is regressive both because it only applies to wage income, not investment or other income, and because most of it (all but the Medicare part) cuts out on wages above ~$90,000.

Finally, as John Mace eluded to, there are the state taxes which are regressive in most states since sales taxes often make up a large component and these are very regressive (both because the rich invest and save a larger portion of their income and because their spending includes a greater fraction of services, rather than goods, which are usually not subject to sales taxes). Here is the CTJ (Citizens for Tax Justice) link showing the effective tax rates for various incomes in all 50 states.

When all is said and done, the tax system is still probably somewhat progressive (i.e., the rich paying a higher percentage of their income to taxes than the poor), although it is hard to calculate precisely since it depends on your assumptions. (Example: How do you assign corporate taxes? Do they all get assigned to the stockholders or do you assume some are passed along to the consumers?)

However, this progressivity does seem to level off at the top so that the top 1%, say, don’t pay significantly more than the top quintile (20%). In fact, it is my WAG that after all the Bush tax cuts are in effect, with the lower dividend and capital gains rate and all, we may even find the top 1% paying at a lower rate than the top quintile. There is a recent book called “Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else” by David Cay Johnston that argues that indeed the changes in the tax code over the last quarter century or so have really brought a boon to the top 1% or fraction thereof and that their actual tax rate is probably considerably lower than their reported one because of various ways in which they can even hide income from having to be reported (often legally, sometimes of dubious legality, or even illegal).

Finally, I think that no discussion of taxation is complete without noting that, however you slice things in terms taxation, what is unambiguously true is that most of the gains in income, even looking at after-tax income, have gone to the rich over the past quarter century. For example, in real terms, the after-tax income in “real” [i.e., inflation-adjusted] terms of the top 1% of households has increased by 201% (i.e., tripled) between 1979 and 2000. By contrast, that for the middle quintile of households has increased only 15% (and, as I recall, most of this increase is due to more hours worked, not higher real hourly wages), and for the bottom quintile it has increased only 9% (with nearly all of that gain coming in the hot economy of th late 1990s…don’t know how much has been erased by now). See http://www.cbpp.org/9-23-03tax.htm for details.

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So, basically, as the rich get richer and the poor get poorer, the poor should be happy that it means that they pay less in federal income tax?

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Note the weasel word 'almost". If you earned $30K your Federal Income taxes would be under $3000. If your taxable income was a bit over $300000, you’d pay around $90000. A difference of $87000, and you’d only pay about 3% of what he paid, whereas you “only” earned 1/10th. Thus, you can say “almost”. :rolleyes: But to someone earning $30000- that $3k is a large bite.

8

Yeah, good point DrDeth. One major concern of the Wall Street Journal editorial page in their famous “Lucky Duckies” and “Lucky Duckies II” editorials was that with, say, the bottom half of the people paying only 4% of the income taxes, there was this whole constituency who were paying so little in income taxes that they didn’t have anything invested in worrying about how high those taxes are and thus it would be too easy for them to support higher taxes.

Of course, this whole argument is silly on the face of it because the fact that they pay only a small portion of the total taxes raised doesn’t tell you anything about how hard the taxes hit them. In fact, taking 10% of the income away from someone barely scraping by seems like it would have a much bigger impact on them than taking 30% away on someone earning a few hundred thousand dollars a year. Besides which, the story of our tax system generating a larger fraction of its money from a small fraction of people is more the story of the explosion of inequality than of any dramatic increase in progressivity of the tax code. (The federal income tax itself has become more progressive near the bottom with the expansion of the earned income tax credit but it hasn’t really changed much in progressivity at the top…and seems likely to become less progressive there with the dividends and capital gains tax cuts.)

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By the way, just to dissect some of the rest of Boortz’s column…

*Boortz: Kerry’s plan is to raise taxes on the top two percent of income earners. Any psychologist who is not employed by government will tell you that you get more of the behavior you reward, and less of the behavior you punish. Punish people for their economic activity and they will reward you by slowing that activity down. *

I have always had my doubts about how true this becomes at high income levels where the money seems to really become more about keeping score than anything else…and the motivations for doing what you are doing must increasingly become divorced from the monetary rewards. I mean, does anyone really think that Bill Gates is going to say, “You know if they were going to let me keep 70% of the billions I earned each year, I’d work a lot harder; but now that they are only going to let me keep 65%, I think I’ll just sit back and lounge and enjoy the fruits of my labors.”

Boortz: Let’s say you are a Sub-S corporation with five employees. Kerry gets elected and your taxes go up by about $35,000 a year. Perhaps the easiest way to recoup that loss would be to cut back on some capital expenditures and expansion plans, and fire your least productive employee. How many employees of these small businesses will be laid off to satisfy John Kerry’s class warfare designs?

Well, of course this is a silly argument because Boortz is imagining money as manna from heaven. Sure, you help the economy by pumping more money into it. But, if you give it as a tax break to a poor or middle income person, they will go out and spend it, stimulating demand and tending to rather rapidly percolate that money up to rich folks who can then invest it. [While “trickle down” economics seems dubious, it is quite obvious that money has been percolating up amazingly effectively!] Or, if you use that money to reduce the deficit, government borrowing, and thus keep interest rates low, you help investment. Or, if the government keeps the money and uses it to rebuild roads or schools or other infrastructure, it likewise ends up creating jobs, etc.

The question is not whether money creates jobs but which of these ways is the best thing to do (at the margin) with each additional dollar of money. Boortz has done nothing to show that his way is the best way.

Boortz: Kerry also wants to replace the tax on corporate stock dividends. In other words, he wants corporate profit to be taxed twice. Tax it once when the corporation reports its earnings to the government, and tax that profit again when it is distributed to the (shareholders) owners.

As has been pointed out, (1) it doesn’t really matter so much how many times it is taxed but what the effective tax rate ends up being, (2) as a matter of actual fact, much of these profits are not even taxed once let alone twice. See here.

Boortz: The top one percent of income earners still earn about 17 percent of total reported income, but they’re paying 37 percent of all income taxes.

This is a bit of a nitpick, but it looks like Boortz used the higher year-2000 number for the percent of income taxes paid by the top 1% and the lower year-2001 number for their income share. It should either be 20.8% of the income and 37.4% of the income taxes (year 2000) or 17.5% of the income and 33.9% of the income taxes (year 2001).

10

LonesomePolecat…

I’m curious, just what percentage of your income did you pay in Federal tax ?

11

I’m in the bottom 50% bracket and I have never paid income tax.

12

Precisely. I would like to see Boortz answer this question: you claim that raising taxes on the top two percent will remove their motivation to work. You also complain about the fact that the bottom fifty percent supposedly pay too little. So which would hurt the economy more, reducing motivation among the top two percent or reducing motivation among the entire bottom fifty percent, which includes the majority of of factory workers, truck drivers, farm laborers, as well as a significant percentage of teachers, firefighters, etc…

13

If there was ever an SDMB thread more convincing of the value of $4.95, I haven’t seen it.

jshore, thanks for the education. Your explanations are thorough, insightful and intelligent. As a bottom-feeder, I now know what to say to those rich fucks whining about taxes and John “Hungry-for-their-Money” Kerry, as I make them their $4 mochas. Well, maybe I should hold back a bit. :wink:

14

Another thing to bear in mind, as we discussed in a recent thread, is that progressive tax systems tend to work so that the smaller the total revenue, the greater the percentage contributed by the higher-income taxpayers. So the more you cut taxes for all (assuming the cuts in terms of percentage points are roughly equal across the board), the higher the percentage of total tax revenue paid by the wealthiest.

In other words: the bigger the tax cut, the bigger the share of the tax burden that falls to the richest taxpayers, even though the total tax burden has decreased for everybody. So no matter how low taxes go, the anti-tax crowd can always complain about the grievously increasing burden on the wealthy! You’d almost feel sorry for them, if you didn’t stop to think about it.

Hear hear! (And as jshore’s RL-friend, I can attest that he’s also cute, funny, and single, plus he’s a fool for your username! Hey, 'fiwere you I’d think about it, C-Girl. ;))

15

The main claim is highly deceptive. It gives the impression that the bottom 50% don’t pay income taxes. See above for why this is wrong. End of story.

A more accurate statistic might be that because of incredibly asinine tax loopholes, 2/3 of America’s corportations paid nothing in taxes from 1996 to 2000. Nothing. At all. 90% reported paying no more than 5% taxes, even thought the rate was supposedly 35%. Both Bush’s Harken energy and Cheny’s Haliburton profitted big from drastically cutting their tax burdens using schemes like fake offshore subsidiaries, and it’s a strategy they continue to defend today.

And, no one should scoff at the idea that increasing taxes reduces tax effort. It’s true, and a real concern. What people should scoff at is the idea that increasing taxes by only 200$ per year on the wealthiest citizens will appreciably impact their work effort at all.

16

Oh yeah, all those crocodile tears us po’ folk are weeping for the rich are gonna have a truly catastrophic effect on the weather. It surely explains all the flooding of recent years. :smiley:

Alas, if only my hubby would get off his moral pedestal and let me have some fun! :wink:

17

Apos: A more accurate statistic might be that because of incredibly asinine tax loopholes, 2/3 of America’s corportations paid nothing in taxes from 1996 to 2000. Nothing. At all. 90% reported paying no more than 5% taxes, even thought the rate was supposedly 35%.

Yeah, when even World’s Second-Richest Person Warren Buffett thinks that corporate taxes are too low, it’s time to pay attention.

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Third richest.

19

Let’s say I (under the 50% threshold) and Bill Gates walk into BP tomorrow.

We both buy a pack of cigarettes and a six-pack of beer. Whom is paying more in taxes? Neither, we pay the same.

Now consider that my wife and I were on the hook for about $600 in taxes this year. How much did Bill and Melinda pay? (really, I can’t even guess) But I think it’s safe to assume it was a bit more. Do I want the Gates’ to get a tax cut? Hell yes!!! Think of all the people earning a living thanks to Microsoft. Think of how much those people are paying payroll tax. Think of all those people paying income tax, even after the tax cuts.

If Gates saves $500,000 in taxes, how many people could Microsoft employ with no net loss to Bill’s net worth? Keep in mind, he has pledged a BILLION dollars to AIDS relief.

Yet the same pols raising gas/tobacco/alcohol taxes are only hitting the lower-income people by not making it graduated.

Rich getting richer? Nah, I’m just subsidizing their tobacco habit.

20

Well if Warren Buffett says so…