Who Pays America’s Bills?

by J. Scott Moody on July 13, 2009, 11:53 pm

in Economics,Education,Politics

Following David’s previous posting on the proposed tax hike on the rich, I am continually amazed at how little information is used when determining the course of tax policy. In essence, the definition of the so-called “rich” is based on a simple, uni-dimensional analysis of taxpayers–namely, their income. It is as if taxpayers were nothing more than ATMs with the only difference being the denomination of bills that they dispense. Of course, this ignores the reality that “taxpayers” vary dramatically in many other dimensions.

This booklet called “Putting a Face on America’s Tax Returns” produced by the Tax Foundation should be required reading for all policymakers before they resume class-warfare. In a nutshell, it finds that the average “rich” taxpayer is a married, dual-income couple with children and is well-educated, in their prime earning years, live in high cost-of-living areas and entrepreneurial. On the flip side, the average “poor” taxpayer is single, young, poorly-educated and works less than full-time. Is it really a surprise that there is an income differential?

A closer look at the business side from this Tax Foundation report shows that 73.7 percent of taxpayers in the top 1 percent of income have some sort of business income. In fact, only 37.1 percent of their income comes from salaries and wages. The rest comes from Schedule E (S-corps, LLCs, rental income, etc., 20.6 percent), Capital Gains (18.1 percent), Taxable Interest (5 percent), Schedule F (Farm Income, 4.1 percent), Dividends (3.1 percent) and Schedule C (Sole-Proprietorships, 2.8 percent).

Additionally, those taxpayers that claim some sort of business income paid 55 percent of all personal income taxes. Those business-owners with more than $200,000 in income paid 37.4 percent of all personal income taxes.

Therefore, if policymakers took a multi-dimensional view of taxpayers they would realize that so-called “tax the rich” strategies are really an attack on the folks that have made America the great nation it is today.

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