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Wednesday, 22 February 2012 17:30

Who pays most of the taxes?

Written by  Ollie George

Mr. Donald Gilliland, a Florida Today's Community Columnist, wrote on February 2, 2012 that the wealthy are the ones who pay most of the federal income taxes. It's unclear exactly how he arrived at that conclusion because when I checked his sources, I came up with something completely different.

Individually, wealthy Americans do pay more in taxes than middle or low income earners. But, then again, why shouldn't they? To understand why, one needs to realize that the median income for average working Americans is about $51 thousand a year. Millionaires and billionaires can sometime earn that much in a single day. If a billionaire makes $10 million a year on his investments then he will, naturally, pay many more tax dollars than someone who makes $51 thousand a year. This is as it should be.

The sticking point, however, is how these two disparate incomes groups are taxed. The income from the average working person is normally taxed as ordinary income, and can be as much as 35%. The millionaire or billionaire's income comes primarily from investments and is taxed under the capital gains tax law, capped at 15%. This is where the average working American suffers a huge disadvantage. People who make $51 thousand a year must use just about all of their disposable income for life's necessities so they are unable to take advantage of this 15% capital gains loop hole.

Additionally, it should be pointed out that in a progressive tax system, high incomes would normally be taxed at more than twice this 15% rate. This makes sense because those high income earners reap the maximum benefit from the American economy, while low income earners struggle just to feed and shelter their families.

Mr. Gilliland and Republicans want Americans to believe that most of every tax dollar paid in to the U. S. Treasury is paid by the very wealthy. This is absolutely not true! According to the Tax Foundation and Reuters News Service, people in the $1 million to $10 million (AGI) tax bracket pay an average tax rate of ONLY 9%. Their total share of taxes paid to the treasury in 2009 was 20%. The other 80% of ALL tax dollars collected by the treasury was paid by individuals making less than $1 million a year. The 9% tax rate the wealthy pay on their earnings is especially revealing because it is excessively low and clearly unfair.

Gretchen Carlson, Fox News host said last year that 47% of Americans do not pay any taxes. Senator John McCain and Sarah Palin said the same thing during the 2008 presidential election campaign. Again, not true. Do poor Americans pay taxes? Absolutely! The poor may not pay a high federal income tax rate, but they pay a much higher percentage of their incomes in other taxes such as gas, clothing, food, consumer items and utilities.

A word about capital gains and dividends: The Tax Policy Center reports that the richest one-fifth of Americans accounted for 86% of all capital gains and dividend income. About two-thirds of that went to the richest 1 percent and 44 percent went to the 0.1 percent. According to IRS statistics from 2009, those who made 10 million or more grossed nearly 70 billion in long-term capital gains.

When all this information is taken in its entirety it stands in stark contrast to the things Mr. Gilliland and the Republicans are saying. Their figures might sound convincing but the problem is they only let readers see what they want them to see.

 

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Ollie George

Last modified on Saturday, 03 March 2012 18:28
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