We've heard it; you've heard it... over and over and over again. Obama and many on the left have used this slogan repeatedly. We ask why? Why is this so popular? Is it truly a move that once executed could reign in the deficit? Could we close the spending vs. deficit gap? Sure, our government spends $3.81 trillion per year, which works out to about $122,000 per second, but perhaps we wouldn't be in such dire straits financially ($1.3 trillion yearly deficit) if we just taxed the rich more, right? Or is this the mantra of class warfare? Is it a hollow, do-nothing tactic that will ultimately pit the non-rich versus the rich without actually doing anything positive for our federal budget? Who knows?
We wanted to find out, and we did. Below is our analysis. We are using IRS tax data from 2009. We used the same info for our post on January 30th, 2012: http://loudmouthelephant.blogspot.com/2012/01/stopping-lefts-propaganda-with-truth.html
For the IRS data spreadsheet, click here: http://www.irs.gov/pub/irs-soi/09in11si.xls
We broke down our analysis into two segments: tax filers with total incomes > $1,000,000 and tax filers with total incomes > $200,000. First, the million-dollar earners:
Take a look at Figure 1. These are the givens, the real information extracted from the IRS data:
What do we take from this? First, the facts:
- In 2009, there were 236,883 filers with incomes of one million dollars or more. These earners comprise 0.17% of the total (140,494,127) filers.
- Millionaires paid an average final effective tax rate (this is AFTER deductions, write-offs, loopholes, etc.) of 28.5%. Earners with incomes below $1,000,000 paid an average final effective tax rate of 16.2%. For an understanding of how a final effective tax rate is calculated using the current marginal tax rate system, click here.
- Millionaires paid $177 billion in taxes. Though they made up only 0.17% of the tax base, they paid 20.5% of ALL the income taxes paid.
Conclusions? Check them out in Figure 2 (click the image for an enlarged version):
What do these calculations mean? First, the method:
We took the number of tax returns and the total income tax paid and increased each by the proposal on the left. For example, if we increased the tax rate paid by millionaires by 10% (the top proposal) they would pay $17,749,967,200 more in taxes. This would increase their overall final effective tax rate to 31.3%. Unfortunately, it would only decrease the deficit (remember, using $1.3 trillion) by 1.4%
As far as conclusions go, increasing taxes on million-dollar earners would do very little for our current financial situation. Looking at the data, if we raised millionaires' tax rates to a total final effective tax rate of 42.7% (a 50% increase), we would only shrink the deficit by 6.8%, and we would still have a $1.211 trillion deficit. If we increased their taxes by 200%, they would be paying 85.4% of their income in taxes and would only decrease the deficit by 27.3% Finally, as you can see with the bottom line, we would have to increase millionaires' tax rates by 366% to halve the deficit (as Obama promised to do in 4 years). Unfortunately, millionaires would be paying 132.7% of what they made in taxes. Fair share? Ha! Regardless of what we do to tax rates paid by millionaires, it wouldn't do much. It is clear that in order to close the deficit, the U.S. government would have to drastically cut spending.
Now, onto tax filers earning > $200,000. As with Figure 1, Figure 3 below shows the givens taken from the IRS data:
- In 2009, there were 3,924,490 filers with incomes of $200,000 or more. These earners comprise 2.79% of the total (140,494,127) filers.
- These earners paid an average final effective tax rate (this is AFTER deductions, write-offs, loopholes, etc.) of 26.8%. Earners with incomes below $200,000 paid an average final effective tax rate of 13.3%.
- Filers earning more than $200,000 annually paid $434 billion in taxes. Though they made up only 2.79% of the tax base, they paid 50.2% of ALL income taxes paid.
The conclusions (click the image for an enlarged version):
As with the millionaires, though less severe with regards to the amount of tax rate increases needed, increasing the tax rates of earnings pulling in > $200,000 still does not do much for our financial situation. If the tax rates for this group were increased by 30%, the federal government would only pull in approximately $130 billion more in tax revenue. This would reduce the deficit by only 10% to $1.169 trillion. If the government increased their tax rates by 149.6%, it would reduce the deficit by half. Unfortunately, these earners would pay nearly 67% of their income in taxes, and the negative effects on the economy as a whole would be drastic.
So what does this all mean? In my opinion, the "tax the rich" mantra is nothing but a class warfare slogan. The rich pay a disproportionate amount of the income tax in this country already, and for a country that prides itself on "equality," how can we think of making the tax situation more imbalanced? The government wants to spend, spend, spend, which is the REAL problem, but we cannot simply turn to our rich countrymen and say "pay up!" The spending must be reduced. It's plain and simple. As far as the financial effects of taxing the rich would have on closing the deficit gap and improving our country's financial situation, as they say on the hit show Mythbusters, this notion is "DEBUNKED."
Please share your opinions below.