Who Among Us Pays Income Taxes?

Mindful that much of the Revolutionary War was fought in order to not pay taxes to the British in the 1760’s, it’s obvious that if our nation is going to sustain itself, money has to come from somewhere.

I’m not going to dig into the weeds and talk about all the different kinds of taxes we’re subject to, either as individuals or as companies. I recognize the need for property taxes to help fund public schools, sales taxes to help finance the various services we demand of our state and local governments, like roads, and other taxes like excise taxes, payroll taxes to fund Social Security and Medicare, among others. I also recognize that certain enterprises such as churches and other not-for-profit enterprises are exempt, though I have issues with mega churches and its leaders who appear to game the system.

What I’m writing about is a transformation since 1950, almost 70 years, in terms of who among us really pay taxes into the system. And for the record, income taxes since their inception were intended as a progressive tax, where as you have more income that is subject to tax, you pay higher average rates. Contrast this with sales taxes, whether local or state, that are regressive.

A regressive tax is where the lower your income level, the amount you pay for stuff and pay a sales tax, the greater the proportion of income you pay in taxes. On the low end of the income scale, sales taxes consume a far greater percentage of income than it does for those on the high end.

I came across an image file that when clicked on, shows the tax rate paid by people in incremental income groups. Starting with folks in the lower income tax brackets on the left and moving right toward those who might arguably be among the 400 highest income people in the country.

As you watch it, the yellow line starts at around the 26% rate, then moves more or less horizontally until, at about the 90th level, it moves sharply upward. In 1950, those in the top % clearly pay a higher average rate. Over the next 68 years, those folks enjoy an increasing less progressive tax which, by 2018, is revealed to be less than many of those in the middle.

There’s a faint white arrow in the middle of the chart that needs to be clicked. If it doesn’t stop at the end of 11 seconds, try this URL: https://i.imgur.com/xhYCQh4.mp4

How is it those at the very top of the income scale now find themselves paying a lower tax rate than the majority of us? Is there any wonder the middle class is getting smaller? For many of those 68 years, it was the middle class that was the economic engine that drove the United States economy. Consumption by the middle class was critical for the continued growth of the economy.

The issue of income inequality also comes to mind, and while I don’t have a problem making sure those at the top are not unfairly treated, I do have an issue with them paying less per capita as a group than the group to which I belong. I think it’s in the best interest of those of us in the middle to be able to continue to grow as consumers. If steps aren’t taken to mitigate income inequality, the world I leave to my grandchildren will not be a happy place.

And don’t forget the recent tax bill, courtesy of the current administration and Congress in 2017. It was supposed to benefit those in the middle, but if anything, it’s made income inequality even worse.

Am I missing something here and, if so, what is it?