President Biden’s efforts to push through the largest tax hike in US history are based on the falsely verifiable claim that high-income Americans are not paying their “fair share.” In no other country do the rich bear a greater share of the tax burden than in the United States
Data from the Organization for Economic Co-operation and Development shows that the richest 10% of U.S. households earn about 33.5% of all earned income, but pay 45.1% of all income taxes, y including social security and health insurance contributions. This progressivity ratio of 1.35 is much higher than in any other country. The ratio in France is 1.10. In Germany it is 1.07, and in Sweden itself 1. In the latest OECD study, in 2015, the richest 10% in the United States paid 45% of all income taxes. In France, the richest 10% paid only 28%. In Germany they paid 31% and in Sweden 27%. Conversely, the lowest 90% of wages in the United States paid 55%. The lowest 90% of employees in France paid 72%. In Germany it was 69% and in Sweden 73%.
The Joint Commission on Taxation and the Congressional Budget Office found that the 2017 tax cuts made the U.S. tax system more progressive and, according to the CBO, “the highest quintile’s share of federal taxes was 0, 5 percentage point higher in 2018 than in 2017 ”.
By comparing total federal, state, and local taxes to total income, including government transfer payments in 2017, the bottom quintile of wage earners in the United States paid 7.5% of their total income in taxes. The second quintile paid 14.1%, the middle quintile paid 22.7%, the fourth quintile paid 28.4%, and the top quintile paid 35.2%. The relative tax burden continued to rise to an average of 40.9% before falling to an average of 32% for the top 400 earners, who earn more than $ 400 million a year.
Why a lower rate for the first 400 filers? Because they are using the same types of tax-efficient investments that Democrats are now trying to massively expand into their Build Back Better tax bill. They make large donations to charities and lower their effective tax rates by responding to government tax incentives. They buy tax-exempt municipal bonds and invest in things like solar and wind power and social housing. Strange that they are then accused of not paying their fair share.
In classic bait, Mr. Biden and the Democrats are demanding that taxes be raised not only on the 400 tax filers earning more than $ 400 million a year, but on families making $ 400,000. These families are not wealthy enough to use tax-efficient investments effectively, and they already pay a higher share of the tax burden relative to their income than any other taxpayer on earth.
The tax trick of the wealthy Democrats is even more evident in their pledge to remove the National and Local Tax Deduction Cap, or SALT. Reinstating the SALT deduction would offer tax cuts for very high earners in heavily taxed blue states – again, many of the same people Democrats claim are not paying their fair share.
If the Democrats’ goal had been to ensure that sophisticated, high-income filers would always have to pay a minimum amount of tax, they would have reversed the dramatic reduction in alternative minimum tax provisions contained in the cuts. 2017 tax cuts. AMT cuts cost the government more than $ 637 billion over a decade, more than a third of the total cost of 2017 tax cuts. Why would Democrats leave these tax cuts in place, unless their demand for taxes on the rich is simply a ruse to raise taxes for upper-middle-income families?
Democrats can get away with claiming that raising corporate taxes is a tax on the rich just because people don’t understand that corporations ultimately don’t pay taxes. If there is one thing economists agree – and there is not much – it is that all taxes imposed on businesses fall partly on the consumers of their products and partly on their consumers. shareholders and their workers. Workers pay between 50% and 70% of corporate tax which is not passed on to consumers in the form of higher prices. The record growth in real wages after the 2017 corporate tax cuts, especially among low-income, minority and disadvantaged workers, confirms this.
So when corporate tax rates are raised, it is workers and their pensions, retirement accounts and insurance investments, who hold 72% of U.S. equity, who pay most of these. taxes. Unsurprisingly, with a large chunk of the 2017 tax cuts consisting of corporate tax rate cuts, child tax credits, and a doubling of the standard deduction, Trump’s tax cuts have made the tax code more, not less, progressive.
Since the start of the war on poverty in 1965, the labor force participation rate of wage earners in the bottom quintile, who now receive more than 90% of their average income of $ 50,000 in the form of government transfer payments, has been from almost 70% to 36%. With the Build Back Better Act proposing to explode unearned benefits and pour them out on middle-income Americans, how long will it take for the current 61.6% participation rate in the United States? United falls to 55%, as is the case in France, or 50%, as in Italy? Who then will pull the wagon and pay the taxes to fund the American welfare state?
For a while, Democrats can just think of more Americans as wealthy and raise their taxes. Ultimately, an American welfare state will demand European welfare state taxes, such as a 20% sales tax paid by everyone.
Mr. Gramm is a former Chairman of the Senate Banking Committee and a visiting scholar at the American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics. John Early contributed to this article.
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