The United States, like most nations in the developed world, maintain a progressive federal income tax system, meaning people not only pay a given percentage of their income in taxes but that percentage increases for high income earners, from 10 percent for individuals making a little more than $8,000 a year to 35 percent on incomes over $370,000.
As a result, in 2008, the top 1 percent of American income earners paid 38 percent of all federal income taxes. The top 5 percent that year paid 58 percent.
According to statistics from the Organization for Economic Cooperation and Development, America has actually the most progressive income tax system among industrialized nations!
But you wouldn’t know it listening to Barack Obama’s deficit reduction speech on Wednesday. The president, like members of his party so often do, portrayed the tax burden carried by top income earners as unjustly light and blamed much of the nation’s fiscal crisis on the top rate tax cuts enacted during the previous administration.
In the last decade, the president noted that the average income of the bottom 90 percent of working Americans had declined while the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. “That’s who needs to pay less taxes?” he wondered.
Yet it is what Republicans have proposed. The budget drawn up by Congressman Paul Ryan of Wisconsin would lower both corporate and top income tax rates to stir investment and job creation. The president rejected the idea, saying, “there’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires.”
Unlike the president’s own proposed $4 trillion in deficit reduction over the next twelve years, the Ryan plan actually does manage to balance the budget, if barely, by 2021—without raising taxes. But it does so at the expense of popular health support entitlements that Democrats are unwilling to reform.
Reflecting the ideological divide on taxation, the president professed that “at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.” Rich people, he added, “don’t need another tax cut.”
Except most of those “fortunate” Americans didn’t get rich by sheer fortune. They worked for their money and already, they shoulder more than fair share of the tax burden. They may be able to “afford to pay a little more,” but the real question is—should they?
Democrats claim the moral high ground by appealing to an undefined suspicion that “the rich” really don’t deserve to be; that they amassed their fortunes at the expense of honest, hard working Americans who never stood a chance against the unscrupulous, rugged capitalist businessmen who don’t care about fairness and human dignity. It is why so many people hate the rich.
The reality is very different. The supposed maldistribution of wealth that characterizes a free society is actually the fair outcome of honest competition. Entrepreneurs and professionals who work hard and innovate prosper whereas people of limited ability remain poor.
That’s not a vision Democrats can accept. As Obama put it last Wednesday, they do not “begrudge those who’ve done well” but he does believe that people “who have benefited most from our way of life can afford to give back a little bit more,” adding that this “has not hindered the success of those at the top of the income scale, who continue to do better and better with each passing year.”
The notion that somehow “those who’ve done well” owe their success to society at large and should therefore “give back” is widespread among leftists and it justifies them in demanding “little” tax increases time and again. What is more, wealthy people won’t miss the money anyway because, as the president said, they continue to do well.
In this vision, it is the government, not those who pay taxes, that determines much taxation would hurt people, or “hinder their success.” In this vision, tax cuts equal “spending” and tax increases are “spending reductions in the tax code.” In this vision, most wealthy Americans would gladly “give back” more to the country “that’s done so much for them. It’s just Washington hasn’t asked them to.”
In the real world, Washington has asked plenty of the rich and compelled them to seek all sorts of tax deductions and accounting tricks to avoid having to pay high taxes.
Even if the infamous Bush era tax cuts are reversed, as the president likes to do, it would not solve the nation’s record $1.6 trillion deficit. It is disingenuous to pretend that simply by making taxes “fairer,” America can avert a debt crisis.
If balance is to be restored to the federal budget without raising taxes, deep spending cuts will have to be enacted. If Washington wants to boost revenue, it cannot simply target “the rich” without undermining economic growth and the president’s much cherished “competitiveness.”