Tax Rates

At the risk of sounding like a Democrat, I get a bit annoyed with what seems like sophistry such as this:

One reasonable yardstick might be the average rate paid when all federal taxes -- including not just income taxes but also payroll taxes -- are considered. The Congressional Budget Office reported last month that in 2009, the top 20 percent of taxpayers paid an average of 23.2 percent of their income in federal taxes -- more than double the 11.1 percent paid by the middle quintile, and 23 times the 1 percent paid by the lowest quintile. Even within the top 20 percent, average tax rates rose with income: The richest 1 percent paid 28.9 percent of their earnings in federal taxes.

There are legitimate arguments that from an economic efficiency standpoint, raising taxes on high income earners is a mistake, because it discourages them from amassing the capital required to create jobs.  Even the Hollyweird sorts, who are probably not amassing capital for any investment except Obama's second term, are at least spending most of their disposable income on things that redistribute wealth to middle class and below workers.

What gets left out of discussions like this is that for a lot of middle class and below people, they are struggling to pay their monthly bills, while much of the wealth of the top 1% is being spent on luxuries that the rest will never enjoy.  It's their money, sure.  But for many, that wealth is a direct result of government protection of their intellectual property.  They get taxed a lot more heavily than the middle class and the poor, but they also get a lot more from the government, too.  (Remember that wealth redistribution is largely upward, to people who invest in green energy companies, and rely on government protection of their music.)  Higher taxes on the 1%, while it would certainly be damaging to the economy, at least would starve the Democrats.

The other flaw with CBO's numbers is that it shows payroll taxes paid, but not the clever schemes that allow the top 5% to have no taxable income.  Sometimes this is straightforward stuff: buying municipal bonds of your state of residence.  Sometimes it is very complicated schemes, such as Jack Welch's GE-paid condo and jet.

UPDATE: A reader asks if this "looting and pillaging of shareholders by CEO pirates" is a separate issue from tax rates.  If the beneficiaries of these looting and pillaging schemes paid income taxes on the benefits that they received, it would not be our concern.  But one of the reasons that these looting and pillaging schemes exist is precisely because they are usually structured to avoid paying even a tiny fraction of the applicable income tax on them.

I read a really depressing book last year about how these tax avoidance schemes that Congress either creates or tolerates have allowed not even the 1%, but the 0.1%, to pay a smaller and smaller percentage of their actual income (as opposed to the fictional taxable income that IRS sees on the Form 1040) in taxes.  I don't object to the wealthy wanting a flat tax, but increasingly, some of the 0.1% aren't creating their own flat tax.  They are creating a situation like pre-Revolutionary France, where the peasants were subject to crushing tax rates, while the Church and the nobles were exempt.

Of course, it isn't a crushing tax rate today; it's a crushing deficit.  I know that the 0.1% aren't going to pay enough income taxes to solve the deficit, but they should at least not being using these sleazy tricks to prevent taxable income from being reported.