Are the wealthy paying their fair share, or not?

Data for the 2008 tax year indicates America’s wealthy top one percent (1%) of income earners (people making more than $380,000 a year; or about 1.4 million tax returns) paid thirty eight percent (38%) of all the federal personal income taxes that year, even though they only earned twenty percent (20%) of the reported income. If you extend the analysis to the top five percent (5%) of income earners (people earning $169,000 per year or more), the data suggests they paid almost sixty percent (60%) of the total federal personal income taxes collected, even though they only made approximately thirty five (35%) of all the personal income reported that year.

So how do the lower income earners’ tax contributions compare? During the same year (2008) the lower fifty percent (50%) of income earners (about 70 million returns) only paid two point seven percent (2.7%) of the total personal income taxes collected in 2008. In other words, almost half of the American taxpayers paid almost all of the personal income taxes to the federal government in 2008.

What’s more, the data suggests, and IRS attorneys agree, the “top income earners” are not a stagnant group of individuals who appear year after year. According to the IRS, and consistent with what tax lawyers have been saying for years, looking at the top four hundred (400) taxpayers over a fifteen (15) year period reveals a typical taxpayers’ name appeared only one time in the fifteen year period; or put another way, in seventy two (72) percent of the time America’s richest taxpayers were in the top four hundred (400) income earners only one (1) year out of fifteen (15).

With articles in the news every day about how Americans believe the rich need to step up and pay their “fair share”, there is hardly mention of how skewed the system really is against America’s highest income earners. Similarly, articles saying that a large percentage (often quoted as being greater than 50%) of Americans believe their tax bills are fair. Of course, a large percentage of Americans feel their personal income tax bill is fair, that’s because they don’t have a personal income tax bill, or if they do it is considerably smaller compared to the percentage of what America’s top earners are paying!

Taxpayers reporting earnings more than one hundred and fourteen thousand dollars ($114,000.00) in personal income in 2008 represented the top ten percent (10%) of U.S. income earners for that year. These are not millionaires and they would hardly be regarded by many as “rich.” Never the less, it is this group of taxpayers who are really bearing the greatest tax burden and who ought to be getting some relief from the federal government.

Many of them find themselves dealing with unfiled returns, owing back taxes, IRS wage garnishments, IRS levies and IRS liens year after year. Despite arguably having the resources to stay on top of their tax liabilities (i.e. personal managers, CPAs, tax attorneys), often America’s wealthiest have the most difficulty staying current on their taxes. IRS attorneys and other tax professionals agree, income earners in this group frequently have complex tax issues, earn income sporadically (rather than a regular predicable pay check where taxes is already being taken out), and are often forced to rely on others to manage their financial affairs, which can cause them to have unfiled returns or owe back taxes through no fault of their own.

We need to consider revamping our entire tax system to make it fairer for everyone. Tax lawyers and others agree, we must eliminate the complexities which plague the current tax code and trim the federal budget to live within our means. Increasing taxes on the rich is like killing the golden goose. It may make sense in the short-run, but in the long-run it hurts everyone.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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