Let’s discuss America: The tax myth

Op-ed views and opinions expressed are solely those of the author.

One of the great American myths is that the solution to any national financial problem is to increase the tax rate on the upper echelon of earners, because they do not pay enough already. Seems like an easy argument to make, it is always popular with the masses, but it is utter nonsense. Let us look at some simple facts.

The total amount collected annually by the federal government is broken down as follows:

Income tax 50%

Payroll tax 36%

Corporate tax   7%

Excise tax   3%

Other   4%

What jumps out immediately, of course, is that all of the corporations in America, including the huge behemoths who make billions of dollars every year, only pay 7% of the total income received by the government. We will put that aside for a moment, as we look at who is paying the income tax that represents half of all those total revenues collected, based on their position as earners:

The top 1% of all income earners pay 38.5% of the total income tax.

The next 9% highest earners pay 31.6% of the total income tax collected.

The next 40% highest earners pay 26.8% of the total income tax.

Therefore, the top 50% income earners in America pay 96.9% of all income tax, and the lower 50% pays a total of only 3.1% of the total income tax.  Seems like the wealthy just are not paying enough, right?

Dissecting these numbers a bit further, it means the top 1% of earners, who pay 38.5% of all income taxes, are paying 19.25% of all federal revenues, while all the corporations in the land pay just 7%.  The top half of people working and earning a living in the country, taken together, pay 96.9% of all income tax, or 48.45% of all federal revenues. Corporations…7%.

There is currently an outcry to increase taxes on that 1%, and maybe a few brackets just below them. Why? In a capitalist system, those are the people who are creating work for the rest of us. They are the reason the government receives 36% of its total income from payroll taxes. The top earners pay enough to the commonweal so that fully half of us only pay a grand total 3.1% of all income tax, or 1.55% of all revenues received by the government. What is the problem here?

Just to be clear, I am nowhere near that rarefied strata of large income earners, but it seems to me that 1% of us paying almost 20% of all federal revenue seems a substantial contribution.

The real issue here is that increasing taxes on the wealthy does not actually harm them, it hurts the lower 50% instead. The rich can obviously afford whatever they have to pay, and they still have plenty left over. But there comes a breaking point where they are no longer motivated to build new companies, engage in new transactions and, most important, create new jobs. Which punishes those of us in the lower 50% who are trying so hard to find that employment so we can climb the ladder from poverty to prosperity.

Right now, it seems people are fleeing California and New York because their state income taxes have become too high, and guess who is leading that exodus? The wealthy, of course, because they can afford to go. They are moving to Florida and Texas where there are no income taxes. Some are even taking their marbles and moving overseas. Is that really good for the rest of us?

There are a lot of people nowadays who are making noise about socialism without understanding how it works or what the consequences are in the real world. Socialism has failed everywhere it has been tried, and there are many clever sayings which explain why, since you eventually run out of other people’s money. How much tax do you think those people pushing a Marxist agenda are contributing to the tax revenue pot?

Some of those geniuses in Washington now want to double the capital gains tax rate. That means they are removing a large incentive for people to make long-term investments in companies—investments which generally help to grow the economy. Brilliant, no?

So here is the essence of the Tax Myth—you cannot tax your way to prosperity. The higher taxes become, the more the economy shrinks, which hurts everyone, especially the poorest among us, since the rich will still be rich.  As history has proved time and again, the way to help our economy grow is to lower taxes, which in turn creates jobs and expands income, which then increases overall tax revenues in a healthy, useful way.

The United States of America is built on a capitalist system that is not always perfect, but has succeeded in making us the finest, wealthiest and most powerful nation on the planet. If you do not believe that feel free to move out as so many Hollywood celebrities have promised to do, without following through. And how about those in our country screaming for socialism? In case you have not noticed, none of them seem to be leaving, while there is a surge of people trying to cross our borders from the south and north. Have you heard of anyone trying to sneak into China?

Jobs, prosperity and the American Dream are all built by working together to create industries, technology and opportunities for all. We should keep that as our focus, put aside our differences and keep America healthy, wealthy and strong.


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Jeffrey S Stephens
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