Sunday, October 19, 2008

Income Tax versus Income

Remember Ross Perot? He has a website full of his Charts on all the issues.

This chart compares the taxes paid for various income groups.

It indicates that the bottom 50% of the taxpayers pays only 3.2% of the total Federal income taxes collected yet they earn 12.8% of the total income reported by all taxpayers. That doesn’t sound like an unfair burden on the bottom half.

But, Perot fails to mention that 32% of all taxpayers have a zero or negative tax liability and 90% of them are in the bottom 50% of wage earners.

Thus only 29.9 million of the 69.5 million taxpayers in the bottom 50% are paying 3.2% or $30 billion of the total federal taxes.

Therefore, the actual taxpayers in the bottom 50% are not paying at a rate of only 3.1%. They are actually paying at a rate of at least 7% which is about the same rate as 75% of the taxpayers are paying.

Another way that Perot might have looked at taxes is according to wealth. The bottom 50% of all taxpayers holds only 2.8% of the wealth of the country based on all assets while paying at least 3.2% of the total taxes. While the the top 10% of the taxpayers pay 68% of the taxes and hold 69.8% of the wealth. When compared to wealth the tax burden by income class seems more proportional. However, since less than 57% of the taxpayers in the bottom 50% are actually paying tax a disproportionate amount of the tax burden is still borne by the lower income wage earners.

I think a consumption tax on all purchases except necessities would be more appropriate than an income tax. It would encourage people to save more of their income and it might discourage the use of credit cards.

What do you think?

No comments: