Its tax time again so I thought you’d enjoy a look into who actually pays federal income taxes, where a lot of that money goes, and the effect its having on this country. Niccolo Machiavelli once said “Severities should be dealt out all at once, so that their suddenness may give less offense; benefits ought to be handed ought drop by drop, so that they may be relished the more.” And that’s the way taxes work. In fact, the federal government does such a fine Machiavellian job with the money we send in that those drops of benefits are hardly perceptible for most of us (remember, I’m talking about the feds here, not towns or states).
First up, who pays most of the federal income tax? If you said middle class or working families you’d be wrong. To quote an often referred to article from the San Diego Union Tribune “According to the most recent IRS data available (from 2007), the top 10 percent of households - with incomes roughly $100,000 or greater - pay roughly 70 percent of all federal income taxes. That share is up from just below 50 percent in 1980. If you include the top quarter of all taxpayers, the share balloons to 85 percent.” Taken another way, in 2008 34% of people (48 million individuals) who filed an income tax return paid no income taxes. 52% of the federal government’s total revenue comes from personal income taxes.
Shady breakdown: .85x.52= .44 so 44% of government revenue is paid by 25% of the people filing tax returns.
Is it a healthy sign when almost half of what the government takes in is paid by a quarter of its citizenry? Wait, it gets better… I mean worse, no, more like sad.
According to the 2009 Index of Dependence on Government it is estimated that 60.8 million Americans remain dependent on the government for their daily housing, food, and health care. Roughly 20% of all Americans. But wait, there’s more. Throw in farm subsidies, college loan programs and the Department of Education, Social Security, and the twin big kahunas Medicare and Medicaid and you get a substantial overall dependence on the federal government.
Yeah, yeah, yeah, I’ve seen this government is bad, scare mongering, taxes suck rhetoric before. Where’s the pie chart showing where all the money goes? (it’s right here by the way)
My issue, however, is not with overall spending (although I do have issues with that as well. I have lots of issues). My issue here is with our growing dependence on the federal government. The danger of dependence is two fold. First, as more wealth is transferred from individuals to the government, less is available for investment and savings. Based on the recent behavior of Wall Street one could understand how some people would prefer shipping large portions of their income to the government instead of sending it to inept bankers or criminals running some hedge funds. But as you’ll see, in the long run that’s not a good idea. Second, and more important, as the government becomes more involved in providing services once covered by the private sector it becomes the sole intermediary for those services. There’s a big difference between government grants or contracts given out to organizations and managed via private sector intermediaries (banks, insurance companies, non-profits, and even state or local governments) and directly run government services: the difference is who has power.
When John D. Rockefeller wanted to control the oil market he bought up the intermediaries (pipelines, railroads) first. When the cost of doing business got to be too much for his competitors they sold out to him. With government takeovers of services once performed by the private sector, there is a real risk that the money required to implement those services could be steered towards recipients on a political means, not on needs based or qualified means. What you get are monopolies run not for greed or profit but for politics and power. At least with greed you can argue there are efficiencies from profit seeking and potential for innovation (though not much). Power also becomes more centralized, not a good thing for a democracy.
Still another worry with expanding government is how to pay for it. As mentioned above almost half of government receipts come from about a quarter of its tax paying populace. The rest comes from a variety of fees and other taxes. Even with those additional revenue streams the federal government is far from covering current and proposed outlays. The sizeable gap (deficit) between what Washington spends (the budget) and what it takes in (revenue) is closed by borrowing. For the fiscal 2010 year the federal government will borrow 40% of what it spends. That 40% isn’t like a mortgage, it’s more like buying gas and groceries with a credit card. After a while, the interest on that debt begins to crowd out other spending. If it crowds out too much you go bankrupt.
Finally, as more people become dependent on the government for primary services while fewer are able to pay in, the disparity between rich (tax payers) and poor (government dependents) grows wider and deeper. There's never a good end to this story unless you're a big fan of sacking cities and inventive devices like the guillotine.
So what’s the good news you ask? Well there’s some. You can vote for people who understand the dynamic of spending what we don’t have. You can vote for people willing to make hard choices. You can be willing to absorb some pain now in hopes that there will be less in the future. It’s the political equivalent to brussel sprouts for a nation that prefers wing dings. Good times, good times.
Later.
First up, who pays most of the federal income tax? If you said middle class or working families you’d be wrong. To quote an often referred to article from the San Diego Union Tribune “According to the most recent IRS data available (from 2007), the top 10 percent of households - with incomes roughly $100,000 or greater - pay roughly 70 percent of all federal income taxes. That share is up from just below 50 percent in 1980. If you include the top quarter of all taxpayers, the share balloons to 85 percent.” Taken another way, in 2008 34% of people (48 million individuals) who filed an income tax return paid no income taxes. 52% of the federal government’s total revenue comes from personal income taxes.
Shady breakdown: .85x.52= .44 so 44% of government revenue is paid by 25% of the people filing tax returns.
Is it a healthy sign when almost half of what the government takes in is paid by a quarter of its citizenry? Wait, it gets better… I mean worse, no, more like sad.
According to the 2009 Index of Dependence on Government it is estimated that 60.8 million Americans remain dependent on the government for their daily housing, food, and health care. Roughly 20% of all Americans. But wait, there’s more. Throw in farm subsidies, college loan programs and the Department of Education, Social Security, and the twin big kahunas Medicare and Medicaid and you get a substantial overall dependence on the federal government.
Yeah, yeah, yeah, I’ve seen this government is bad, scare mongering, taxes suck rhetoric before. Where’s the pie chart showing where all the money goes? (it’s right here by the way)
My issue, however, is not with overall spending (although I do have issues with that as well. I have lots of issues). My issue here is with our growing dependence on the federal government. The danger of dependence is two fold. First, as more wealth is transferred from individuals to the government, less is available for investment and savings. Based on the recent behavior of Wall Street one could understand how some people would prefer shipping large portions of their income to the government instead of sending it to inept bankers or criminals running some hedge funds. But as you’ll see, in the long run that’s not a good idea. Second, and more important, as the government becomes more involved in providing services once covered by the private sector it becomes the sole intermediary for those services. There’s a big difference between government grants or contracts given out to organizations and managed via private sector intermediaries (banks, insurance companies, non-profits, and even state or local governments) and directly run government services: the difference is who has power.
When John D. Rockefeller wanted to control the oil market he bought up the intermediaries (pipelines, railroads) first. When the cost of doing business got to be too much for his competitors they sold out to him. With government takeovers of services once performed by the private sector, there is a real risk that the money required to implement those services could be steered towards recipients on a political means, not on needs based or qualified means. What you get are monopolies run not for greed or profit but for politics and power. At least with greed you can argue there are efficiencies from profit seeking and potential for innovation (though not much). Power also becomes more centralized, not a good thing for a democracy.
Still another worry with expanding government is how to pay for it. As mentioned above almost half of government receipts come from about a quarter of its tax paying populace. The rest comes from a variety of fees and other taxes. Even with those additional revenue streams the federal government is far from covering current and proposed outlays. The sizeable gap (deficit) between what Washington spends (the budget) and what it takes in (revenue) is closed by borrowing. For the fiscal 2010 year the federal government will borrow 40% of what it spends. That 40% isn’t like a mortgage, it’s more like buying gas and groceries with a credit card. After a while, the interest on that debt begins to crowd out other spending. If it crowds out too much you go bankrupt.
Finally, as more people become dependent on the government for primary services while fewer are able to pay in, the disparity between rich (tax payers) and poor (government dependents) grows wider and deeper. There's never a good end to this story unless you're a big fan of sacking cities and inventive devices like the guillotine.
So what’s the good news you ask? Well there’s some. You can vote for people who understand the dynamic of spending what we don’t have. You can vote for people willing to make hard choices. You can be willing to absorb some pain now in hopes that there will be less in the future. It’s the political equivalent to brussel sprouts for a nation that prefers wing dings. Good times, good times.
Later.
