In negotiations with Republicans over raising the nation’s debt ceiling, President Barack Obama and his Democratic Party insist that wealthy American should pay their “fair share” and contribute to deficit reduction in the form of tax hikes. But are the rich really “relaxing and counting their money” as the president told a town hall in Reno, Nevada three months ago?
The two polities parties agree that the American tax code should be reformed to eliminate deductions and loopholes that allow millionaires and corporations to evade taxation but Republicans want to lower rates simultaneously so as to avoid effectively raising taxes at a time of fragile economic recovery.
The president in most recent radio address agreed with Republicans that “you can’t solve our deficit without cutting spending” but he added that “you also can’t solve it without asking the wealthiest Americans to pay their fair share.” House Minority Leader Nancy Pelosi promised earlier that her party would not “reduce the deficit or subsidize tax cuts for the rich on the backs of America’s seniors and working families.”
Are wealthy Americans paying their fair share? Currently the top 0.1 percent of income earners in the United States pay as much as 18 percent of all federal income taxes. The top 1 percent pays 38 percent while 59 percent of total income tax revenue is provided by the top 5 percent of taxpayers.
Americans who make over $370,000 a year pay 35 percent in income tax which is far less than is average in Western Europe. On top of income tax, they also pay Social Security and Medicare taxes, including an extra 0.9 percent “Medicare surtax” for high income earners, property taxes plus state taxes that average about 4 percent. Employers are also taxed for unemployment insurance.
Even if the top income tax rates are low compared to other developed countries, so are rates for middle income earners. According to statistics from the Organization for Economic Cooperation and Development, America has actually the most progressive income tax system among industrialized nations.
Democrats are correct when they point out that total revenue this year, estimated to be $2.17 trillion, is the lowest it has been as a share of gross domestic product since the end of the World War II, adjusted for inflation. But raising taxes on the rich a couple percentage points would not mend the nation’s $1.5 trillion deficit. Closing tax loopholes and eliminating deductions for individuals and companies could produce billions of additional revenue but the federal government would still need to cut several trillions in spending over the next ten years to eventually balance the budget.