What Does Fair Share (in Taxes) Mean?
What do left-wing Democrats such as Barack Obama, Hillary Clinton, and Bernie Sanders have in mind when they demand that wealthy Americans pay their “fair share” in taxes?
Demanding that the rich pay their fair share in taxes is part of the age-old Democrat Party playbook that uses class warfare to acquire and hold power. It conveys the presumption that the big-money types are unfairly gaming the tax code so they don’t have to pony-up to Uncle Sam’s coffers on April 15th.
Sadly, this ploy often succeeds, probably because leftists are seldom asked to specify what they mean when they demand somebody pay a fair share in taxes.
Thomas Sowell took a step in the right direction in an essay posted on Nationalreview.com last October 21st. He opened by noting that people who demand the rich pay their fair share do not specify what either the rich or fair share mean. Essentially, Sowell stated, fair share means, simply, “more.”
Sowell made two important points. First, when governments raise income taxes on the wealthy, such as Maryland did in 2012, tax revenues actually fell, because many wealthy people left the state. On the other hand, when U.S. governments in the 1920s (Coolidge), 1960s (JFK/LBJ), 1980s (Reagan), and in 2001 (Bush #43) have lowered income tax rates, the result has been increased revenues.
Sowell concluded, nevertheless, that cries to “soak the rich” have worked again and again, and may also succeed in 2016. That’s probably because terms like the rich and fair share are used “not to convey facts or even allegations of facts, but simply to arouse emotions.” As he noted, cries to soak the rich are “one of the many signs of the mindlessness of our times...”
Sowell’s essay was a useful correction to leftists’ blather about class warfare, but he did not provide much in the way of specifics. If one wants to stymie calls for the rich to pay their fair share in taxes, specific facts are needed. (I’m aware that getting specific on this subject will not prevent cries for class warfare, but it might make it harder to take them at face value.)
One place to turn for factual information on who pays how much percent of the total in income taxes is a report posted on the American Spectator’s blog on May 6, 2015. The data come from 2014, and are reported by the Tax Policy Center, which is the creation of the Urban Institute and the Brookings Institution, two entities not known for right-wing sentiments. According to the IRS, in 2014 the top 1% of all income earners paid 45.7% of all federal income taxes, but earned 17.1% of all income in the U.S. The top 20% paid 83.9% of all federal income taxes, after earning 51.9% of all income in America. The middle 20% of income earners – who the American Spectator claims are the true middle class in America – paid 5.9% of all federal income taxes, but earned 14.8% of all income.
These data, and those from other websites, need to be viewed in light of the fact that, due to facets of the tax code, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) provisions, lower income earners pay very little, or nothing, to the IRS. According to the Tax Policy Center, the bottom 40% of income earners in 2014 paid nothing in federal income taxes, due to the EITC and/or the CTC. (Low income earners may pay state income taxes, property taxes, sales taxes, and other levies, such as F.I.C.A. [social security], but that’s essentially irrelevant to this argument.)
The burden of paying federal income taxes has shifted toward those in the upper income tax brackets in recent decades. A report posted on Investor’s Business Daily blog on April 18, 2016, for example, drew on the Tax Policy Center’s data to show that the percentage of federal income taxes paid by the top 20% of income earners rose 19.2 percentage points between 1979 and 2014 (from 64.7% to 83.9%). Moreover, although the share of all income accounted for by the top 20% of income earners rose by seven percentage points since 1980, their share of all federal income taxes rose more than 23 percentage points.
Helpful as these figures are, they don’t get at two key questions. First, how much money per year should one make to be classified as rich?
Let’s look first at what ordinary Americans think. According to the Washington Post, a 2013 poll reported there was a relationship between how much an individual makes and what he/she thinks it takes in income to be rich. People with incomes of less than or equal to $50,000 a year opined that someone making $200,000 or more is rich. People making between $50,000 and $100,000, on the other hand, said that it would require at least $260,000 per year to be rich. Finally, for people making more than $100,000, one would have to make at least $1,000,000 per year to be rich.
Experts on the topic of wealth have different opinions.
According to an essay posted on Slate.com in August, 2014, information in the World Top Incomes Database specifies that a yearly income of $113,000 puts one in America’s top 10% of income earners. Those making $394,000 or more a year fall into the top 1% of American income earners.
An essay posted on Financialsamurai.com, and updated several times, specified four income/class categories. An annual income of $50,000, for example, puts one in the lower middle class. If one’s income equaled $100,000, one was safely middle class. To be classified as upper middle class, one had to make at least $200,000. If, however, you made $500,000 or more, you were rich.
Second, we also need to try specifying what fair share means.
Here we enter a figurative swamp. Part of the problem is that most Americans are incredibly ignorant about income taxes. More people complain about paying too much in taxes than actually pay federal income taxes. Part of it also is that partisanship resonates with divergent opinions about taxes. Republicans, and even Independents, are more tax adverse than Democrats.
Americans’ opinions about taxes are, to put it mildly, inconsistent. Although nearly two-thirds believe corporations aren’t paying a fair share in income taxes, and roughly three-fifths opine the same about “some wealthy people,” slightly over half tell pollsters they pay “the right amount” to the IRS, and roughly a third claims to like or even love doing their taxes.
Probably the best way to view this is to realize that attempts to specify what fair share means will always be ambiguous, but at least information like this will put left-wing demagogues on the defensive.
The next time some leftist laments about paying a lower income tax rate than his secretary, the best response is: “Nothing in the tax code keeps you from paying more to the IRS.”