I’m sick and tired of idiotic arguments like this one about how “the top 1 percent [wealthiest people] pay about 30 percent [of the taxes].” Let’s look at this argument:
According to the same article, the cutoff for the top 1% is $208,000. So assuming very conservatively that the average taxable income is around $500,000, and a tax rate of around 30% (again, taken from the article), the tax contribution comes to $150,000 per person. Now, taking the average salary of everyone else to be around $40,000, and a tax rate of around 10%, we get $4,000 per person for this group. Now, doing the math:
Assume for calculation’s sake, there are 100 people. So then total income tax collected = 1% * 100 * $150,000 + 99% * 100 * $4,000 = 1 * $150,000 + 99 * 4,000 = $546,000. So now the richest 1% have paid (150,000/546,000) * 100% = 27% of the total tax income.
So now let’s see what would happen if the poor people paid the same rate of 30% (= $12,000):
Tax collected = 1 * $150,000 + 99 * 12,000 = $1,338,000. The richest 1% have paid (150,000/1,338,000) * 100% = 11%.
This number also seems quite disproportionate (i.e. 1% of the people have 11% of the tax burden). Why is this so? Looking at it mathematically, we can easily see that the reason is because of the large discrepancy between the 1%’ers salary and the average salary; 30% of $500,000 ($120,000) is much more than 30% of $40,000 ($12,000). So obviously, a larger portion of the total tax will come from the richer people.
Is this fair? Well suppose everyone was supposed to contribute equally. The most the average person can contribute is his entire salary of $40,000 (100% tax!), which corresponds to a tax rate of 8% for the 1%ers. Is this fair now? Obviously not, because the average person no longer has any income!
So then what about a flat tax rate (of say 30%) for everyone? While the 1%ers might complain that they’re still carrying 11% of the tax burden, let’s see what this difference means to each family. The 1%ers are keeping $500,000 - $150,000 = $350,000. While this is a significant decrease, it will not put the person in any dire financial trouble. Perhaps a more modest house and a BMW instead of a Porsche.
However, the average guy is keeping $40,000 - $12,000 = $28,000. This is a much more significant difference. It can mean the difference between living in a bad neighborhood and living in a decent one. It can mean the difference between having to work 2 jobs and just working one. It can mean the difference between sending your kid to college and not. Thus, the same tax rate has a very different impact on an average guy as compared to the very rich; for the average guy it means the difference between just getting by and living comfortably, whereas for the rich person it’s just a slight reduction in luxury.
So for those who argue that rich people should get tax breaks, either be willing to support an equal tax for everyone (not tax rate, but actual tax amount) (you want to be “fair,” right? what’s more fair than everyone paying the same amount), or shut the hell up and realize that yes, as a rich person you are paying more of the tax but that it doesn’t hurt you as much is it would the average guy paying more.
Tags: tax
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