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What Is Your “Fair Share” of the Federal Tax Burden?

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It’s getting close to that time of the year again when individuals will prepare their tax returns and pay their “fair share” of the Federal tax burden.  But what is a “fair share”?  In the United States we have a progressive tax meaning, essentially, that the more you make the more you pay.  Is that fair?  Why? 

Perhaps one can think of money as a sort of “certificate of societal contribution”.  Society rewards, in the form of monetary compensation, what it needs and what it values.  So, in a sense, and maybe a stretch, the higher the value of an individuals societal contribution the more the monetary compensation paid to them.  So why a progressive penalty (tax) on those people who provide to society the most value or benefit as measured by compensation?

Perhaps it should be the other way around.  If you don’t contribute to society as some expected level (your “fair share of the work”) then you pay a penalty.  How about a reverse progressive tax?  The lower your contribution to society the higher the penalty (tax).

A Sense of Obligation to Society & Human Dignity

When the first pioneers came to America could you be part of a community or settlement and expect to eat but not work?  Back then the expectation was the everyone contributes and that this act of contributing to the work or productivity was part of the lifeblood of community survival. 

But today, is this still true?  Does anyone feel they have an obligation to contribute?  In the Steinbeck novel Grapes of Wrath which is set in the Great Depression of America the Joad family, a poor family of sharecroppers nearly without hope trapped in the Dust Bowl, refused to take “relief” (welfare) – they wanted a job.  To take “relief” , in their eyes, was an insult to human dignity.  Still true today? (“Suppose your only real ambition is not to have to exert yourself to get by... read more )

Today, some people’s highest aspiration is to get on the welfare system.  They spend more time and  effort trying to “work the system” than they would spend trying to find an opportunity to contribute to society.  How times have changed.

Your Fair Share

So who pays what and what is your “fair share” of the federal tax burden?

Here are some summary stats.  You can find the full statistical details from the IRS in the resources section of this posting.

The latest numbers from the IRS – based on 2008 tax returns – show that the top 1% of income earners paid 38.02% of individual income taxes paid. That’s a lot, but it’s actually a smaller share of the total tax bill than the top 1% paid in 2007. That year they paid 40.42%. We also learn from the IRS that, in 2008, the richest 1% of Americans made 20% of all the adjusted gross income reported. That’s almost twice the 12.75% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers earn 20% of all income reported while 70 million share just 12.75%.

But get this: When it comes to taxes paid, an even wider discrepancy shows itself — in reverse. Compared with that 38% of taxes paid by the top 1% of earners, the bottom 50% pay just 2.7% of the taxes collected.

Who do we reward?

Lets cut to the chase on this one.

Fifty percent (50%) of the individuals in America that make a societal contribution where the market value of that contribution is less than $33,048 pay a 2.70% share of the costs that it takes to run the entire society. 

The other fifty percent (50%) – those with a societal contribution valued at more than $33,048 pay 97.3 % of all the costs that it takes to run the society.

So if we slice America into two groups of equal size – lets call them more productive workers and less productive workers as measured by compensation paid by the free market for wages – why penalize the more productive workers placing a burden of 97% of the taxes on them  and only 3% of the taxes on the less productive workers?

If this were Jamestown in 1607, perhaps 50% of the community might ask the other 50% of the community to take a free trip back to England.  Which group would make that request and why?  Would we be here in America today if  a full 50% of the American pioneers contributed only 3% of the effort to build the country and relied on the other 50% to take up the remaining 97% of the effort?

What is the trajectory of a society which progressively penalizes the most productive individuals and rewards those who contribute the least by relieving them of their financial  fair share of what it takes to fund the Federal Government which, supposedly, operates for the benefit of all equally?

Resources

SOI Tax Stats – Individual Income Tax Return (Form 1040) Statistics
http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html

Summary of Latest Federal Individual Income Tax Data
http://www.taxfoundation.org/news/show/250.html
http://www.taxfoundation.org/files/ff249.pdf

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Written by frrl

December 22, 2010 at 8:29 pm

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