Monday, September 28, 2009

The Democrat’s New Tax Math

An analysis of the data on the proposed Democratic tax plan shows that it would have to top 30% of all U.S. income earners paying almost all of the income taxes.

The top 30% of U.S. income earners begins at $68,400/year!

There are a number of things interesting about all this, the first being that G W Bush’s across-the-board income tax rate cuts not only had income tax revenues skyrocketing in their wake, but actually increased the percentage of taxes the highest income earners paid!

In 2007 the top 5% of income earners in America paid well over half of all income taxes (57%) even though they only earned only 33% of the total income. The top 1% of U.S. income earners took in 19% of the total or annual aggregate income but paid 37% of all income taxes.

Way back in 2004, economist Robert Rector noted that “The Census income distribution figures are the foundation of most class-warfare rhetoric. On the surface, these figures show a high level of inequality: The top fifth of households have $14.30 of income for every $1.00 at the bottom.

However, these figures are flawed by the exclusion of taxes and social safety net spending and by the fact that the "fifths" do not contain equal numbers of people. Adjustment for these factors radically alters the picture of income distribution: The top fifth of the population has $4.21 of income for every $1.00 at the bottom.

“The remaining inequality in society is heavily influenced by the lack of work at the bottom. If working-age adults in the lower quintiles worked as much as their higher-income counterparts, the income disparity of the top to the bottom quintiles would fall to $2.91 to $1.00.”

“Still, the top fifth of U.S. households (with incomes above $84,000) remain perennial targets of class-warfare enmity. These families, however, perform a third of all labor in the economy. They contain the best educated and most productive workers, and they provide a disproportionate share of the investment needed to create jobs and spur economic growth. Nearly all are married-couple families, many with two or more earners. Far from shirking the tax burden, these families pay 82.5 percent of total federal income taxes and two-thirds of federal taxes overall. By contrast, the bottom quintile pays 1.1 percent of total federal taxes.”

Moreover, while some of the disparity in income is due to the fact that some skills are simply far more valuable than others, which is why a surgeon earns many times what a schoolteacher does, along with the fact that the top fifth of taxpayers do one third of all the work, a large bulk of the income disparity is due to the wide disparities in the cost of living in various areas across the country.

It simply costs a LOT more to live in places like the D.C. metro area, the New York metropolitan area, the Boston hub, San Francisco, Los Angeles, Chicago, etc. than it does to live in places like southern and western Virginia, South Dakota, northern Nevada, etc.

What the Democrat’s new tax plan would do would be a boom to those living in low cost of living locales, while punishing those working in the larger, costlier urban areas.

This will be a boom to those mostly reliably "Red" low cost of living locales and to Conservatives and possibly the GOP (so long as the Conservative agenda controls that Party) because (1) those rural voters, while happily taking the tax cut, will NEVER support the “godless liberal agenda” sadly associated with the Democratic Party and (2) many of those moderates and independents in those very Blue urban areas could easily be turned Republican once they suffer enough under the liberal’s burden.

So long as they just weakly oppose the Democratic tax plan, there’s really no downside in all this for them. They can just sit back and reap the coming wave of taxpayer resentment that’s sure to come.


namaste said...

sounds good to me, jmk. thanks for the tax lesson.

JMK said...

The really odd thing about the redistributionist viewpoint, Maria, is that it seeks to punish those already woking the hardest and providing the MOST benefit to everyone else. The top 20% or 1/5th of U.S. income earners provide 1/3 of all the labor in this economy and they are ALEADY OVERTAXED! These are, as economist Robert Rector says, "the hardest working, best educated,most productive people.

The top 5% of income earners take in 33% of all the aggregate annual income an pay 57% of all income taxes...

What the redistribuionit ethic ultimately does is to discourage productivity and innovation and that's why it leaves everyone poorer for doing that. Less isn't more....economically at least, less is LESS.

The really ironic thing about all this is that aside from differing skills being worth widely differing amounts of compensation, another major cause of the disparity in incomes is due to geographical cost-of-living differences. For instance, a teacher in NY, NJ, Conn, or the D.C Metro area is paid significantly more than one working in South Dakota or North Carolina.

So, not only will this redistributive plan, discourage productivity and stifle prosperity, it will wittingly or not, reward those living in the generally low-cost-of-living "Red states," while punishing those working in those urban and largely liberal/"blue" areas. And that's not only a recipe for financial ruin, but for a building a tidal wave of resentment among moderate and independent working people in those "blue" urban areas.

Skunkfeathers said...

What compounds it, JMK, is the fact -- sadly a fact -- that many Americans, regardless of their income bracket, don't pay attention to taxation, other than bitching about it in April. Fact is, when all taxation is taken in totality, we are paying plenty on all levels, and that amount is about to go up markedly in '10, when Barry lets the Bush tax cuts lapse.

Incidentally, I make about 25k less than what marks the border of the top 30%, and I still pay significant taxes at fed, state, county, and city levels.

JMK said...

SF, working Americans ARE indeed overtaxed and what progressivity/redistribution does is to actually DE-INCENTIVIZE productivity, thus de-incentivizing prosperity.

That one fact alone, that the top 20% or 1/5th of income earners provide 33.3% or 1/3 of all the labor in this economy, says it all.

People's jobs are valued according to the value they least most of the time.

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