’Tis the season…of taxes. Not so jolly of a subject, but it looms heavy in all our lives as we approach the April 15 filing deadline on a personal level.
It’s also the time of year when state and municipal governments file their annual budgets; we will introduce our 2019 Budget on April 1. So, I will typically have a lot of conversations about taxes in general this time of year. Keep in mind, that I’ve also spent the last 30 years working in the financial services industry…taxes, taxes, taxes! It’s all I talk about, lol!
This year is a bit different, though, considering some of the national rhetoric about wealth distribution and even socialist policies. We often hear politicians say that the “wealthy” should pay more or pay their “fair share.” That rhetoric gets most voters riled up; which is why they use the terminology. But I’m sure you’d agree that the validity of those statements depends on your definition of “wealthy” and “fair share.”
At the risk of letting facts get in the way of rhetoric, let me throw a few at you. The U.S. Tax Code currently has seven tax brackets. The three highest are 32 percent at $160,725, 35 percent at $204,100 and 37 percent at $510,300. Those marginal rates define the tax rate you pay on every dollar over that amount until you reach the next threshold. Every American starts out by paying 10 percent on their first $9,700 earned and then 12 percent until they reach $39,475 and so on. As your income increases, you move to a higher bracket. This is known as a progressive tax, therefore, by definition, the “wealthier” are paying more taxes, and they are paying a higher rate on the more money they make.
Ok, so what’s the bottom line? Based on this progressive tax system, the top 1 percent of taxpayers pay 40 percent of the taxes collected in this country. Expand that view to the top 5 percent and you’ll find they pay 60 percent of all taxes. An even wider view shows that the top 10 percent pay 80 percent of all the taxes paid. Additionally, our tax system includes standard deductions and credits that allow for the bottom 50 percent of taxpayers to pay no federal income taxes at all. So much for the “fair share” argument.
The data also confirms you’re in the top 1 percent if you earn $250,000 and in the top 10 percent at $90,000 annual earnings. So, when you hear our illustrious political leaders talk about the “wealthy” they must be using some gauge I’m not aware of?
Here’s my point: These conversations about taxes should be about how those dollars are spent once the American people pay them. That’s where the solution lies, which is why our leaders like to distract us from looking at that. Just sayin’.