Daniel Freilich's Blog
Posts Tagged ‘revenue’
Friday, February 26th, 2010
The New York Times ran an article recently summarizing the following stats about upper uppper upper income individuals in the U.S.:
–400 tax payers had an average income of $345 million/year.
–Their average federal tax burden was 16.6%.
I did some simple back of the envelope type math.
The tax revenue from these tax payers then was $22,908,000,000.
But what if their income was taxed like most Americans with earned income without the usual breaks afforded high income earners (regressive payroll tax rates, low capital gains tax rates, etc.)? For the sake of simplicity, I’ll assume ALL of their income was taxed at 35% (the current highest marginal tax rate for income taxes)–admittedly, these tax payers would be taxed at lower rates for the first few tax brackets but this over simplification should not have a significant effect on the overall calculation and point. There are deductions that would also lower the actual tax burden too but for simplicity I didn’t calculate these right now. I also didn’t include theoretical effects of raising taxes on high income earners (while lowering taxes on middle income earners) on GDP and therefore on tax revenue (Laffer curve enthusiasts etc…).
At a 35% tax rate, more commensurate with tax rates earned income Americans are used to, these tax payers might have paid $48,300,000,000, providing potential for an additional $25,392,000,000 in revenue to the treasury. Thus, the regressive nature of our federal tax system resulted in loss of about $25 billion dollars in revenue from ONLY 400 tax payers. Can you imagine how much more revenue is lost from high income individuals in the U.S. who are taxed at a similarly unfairly low rate? No wonder property taxes are so high in Vermont. The State needs revenue from somewhere and high income earners are not paying their fair share to the federal government…resulting in low distributions to States.
Such observations demonstrate why we need tax reform in the U.S., returning fair and reasonable progressivity to federal taxation. It is simply unequitable for hard working Americans to be paying 28-35% federal income taxes, while extremely wealthy Americans end up paying little in federal taxes!
We should:
1. Increase progressivity to the federal income tax (increase the upper marginal tax rate from the current 35% to 50%).
2. Add progressivity to the long term capital gains tax so low and middle income earners might be able to garner some benefit from this capital investment incentive of the federal government.
3. Add progressivity to payroll (FICA) taxes–Medicare, Social Security. That responsibility for supporting Social Security ends at $106,800 is so cynical, it is almost laughable. Social Security withholdings should apply to income above this amount too so the burden of supporting Social Security is borne fairly by all. FICA taxes should be applied to all forms of income as well, not just income taxes.
4. Eliminate and/or reduce the tax exclusion for employer-based health insurance for high income earners.
5. Tax hedge fund income as ‘earned income’ (income tax rates).
6. Divide the increased revenue as follows: One third–allocate towards LOWERING income tax rates on middle income earners; one third–allocate towards debt reduction; and one third–allocate to other social services.
Tags: capital gains tax, fairness, income tax, payroll tax, Progressive taxation, revenue
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