Why the rich pay more in taxes than you think

(Flickr / Ken Teegardin)

(Flickr / Ken Teegardin)

When economist Nicholas Eberstadt called the country “a nation of takers,” there was significant backlash among those on the left. Even President Obama responded, saying that entitlements “do not make us a nation of takers; they free us to take the risks that make this country great.”

But a new report by the Congressional Budget Office (CBO) reinforces some of the arguments that Eberstadt made.

When calculations are made to subtract the amount received in government transfers from the amount paid in federal taxes, the results are striking.

The bottom three quintiles (lower 60 percent of Americans by income) are “net recipients” according to the data. That means a majority of Americans receive more in government transfers than they pay in taxes. According to analysis by the American Enterprise Institute, “the lowest 60% of American households by income received an average transfer payment of about $10,000 in 2011.”

So where does this money come from? Mostly the top quintile (the richest 20 percent). The average household in the top-fifth of income earners made a net contribution of $46,500 to the government – mostly used to cover the transfers to the other quintiles! Save a small net contribution ($700) from the second-highest income quintile, the richest Americans are singlehandedly funding the government programs for the rest of us.

There’s another way to look at this data, by measuring dollars in government transfers received per dollar of taxes paid.

The lowest quintile, for example, receives $18.20 in government transfers for every dollar paid in federal taxes. The highest quintile, on the other hand, receives only $0.19 in transfers per dollar paid in taxes.

What this means is that the richest Americans shoulder the burden for all government transfers to poorer Americans, while receiving little themselves. Yet, the president still says the rich are not paying their “fair share.”

The point is missed on Paul Krugman as well, who says, “You could argue that we should have raised taxes at the top much more, to lean against the widening of market inequality, and I would agree.”

Another interesting fact reported by John Merline at Investor’s Business Daily is that the top 1 percent of Americans still receive billions of dollars from Social Security and Medicare. Rich families often receive as much in Medicare benefits as poor families. “Yet despite their being caricatured as pawns of the rich, it has been Republicans who’ve pushed to limit or cut off access to these benefit programs to wealthy Americans,” he said.

What’s the problem with this current system of taxation? It relies almost exclusively on the rich to finance the benefits for other Americans, concealing much of the spending by using terms like tax breaks or exemptions.

The CBO reveals that America relies on the rich more than any other country, according to Scott Hodge, an expert from the Tax Foundation. “The U.S. has the most progressive income tax system among industrialized nations,” he says.

First published at Opportunity Lives

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8 responses to “Why the rich pay more in taxes than you think

  1. As you might expect, I find myself agreeing with the notorious Paul Krugman here. Since I know nothing about economics, this agreement is totally naive.

    Maybe the rich still aren’t paying their fair share given the extent of income inequality? Does a higher percentage of the income of the poor go back into the economy that those of the rich? Maybe these transfers are great for the over-all economy?

    Could the fact that we need to rely so much on the rich be an indictment of the inequities in our economy?

      • If you are speaking about the poor, I think we’ve noticed before that you and I work with quite different stereotypes. I have no sense that the poor, or the bottom sixty per cent for that matter, ‘are always asking for more.”

        I like the notion of a national community that realizes that ‘the care of each for all is required’ for a community to work, that a successful community is ‘centered on economic sharing,’ as one theologian ( I know, not an economist.) puts it. I’d like to believe the top twenty percent show their gratitude by sharing with gratitude. I certainly see that kind of philanthropy locally, here in Grand Rapids..

        • I like that notion too. But we need to make a distinction here. Philanthropy, charity, does show gratitude by sharing with gratitude. What makes giving “generous?” It’s because you don’t have to do it, but you sacrifice anyway. That’s what makes it noble.

          I have benefitted immensely from this charity – as we all have. I attend a beautiful university for next to nothing because people funded scholarships. And when I give (to local ministries, my church, girls in Kenya, missionary friends), I do it with a heart of kindness and love. Can you imagine if, when I donated $50 to a charity, they replied and told me “that wasn’t enough?” What if they said “We know you can give more of your income, you selfish, greedy person.” That would hardly be wise on their part – and it would be wrong I think too. Charities recognize that every gift they receive is generous, and they are thankful.

          We’re talking about taxes here. I rarely, if ever, see gratitude toward those who pay thousands more than we pay in taxes. Demanding that they pay more by law is not “asking for their generosity” – it is telling them that their money is not theirs to sacrifice, and they must be forced to give more of it to us – without any thank-you in return. I would much rather ask for their generosity from a philanthropy standpoint than legally require them to be more “generous.” Because if they have no choice but to “give,” are we really caring for each other?

          • Wow. Some strong disagreements here.

            Why can’t that sense of sharing occur with taxes as well? Wouldn’t that be great? “We the people…..to promote the general welfare.” Rather than seeing them as a demand, why not see them as a community responsibility taken up with joy and gratitude?

            Maybe we all need a conversion experience relative to our attitude toward taxes.

            Your ‘demand’ language indicates an assumption that the rich are already paying their fair share or more than their fair share. This remains open for discussion, as Paul Krugman would claim.

            Your nation of ‘takers’ language also implies a negative connotation on the lower 60% I do not share. Are they always asking for more?

            An assumption I’m making about the local philanthropists is that they do not feel overburdened by taxes or resent the ‘demand.’ They sense a responsibility to do more. I like that.

            Isn’t it also true that the rich are currently being taxed at historically low rates? May not the fact that we rely on the rich so much be an indication of an unhealthy distribution of wealth? May the fact that our tax system is so progressive also indicate an unhealthy distribution of wealth?

            • Why can’t that sense of sharing occur with taxes? Because I described exactly why. How do you feel if someone is talking to you only because they have to? Or if someone tells you that unless you donate to their charity, you will go to jail?

              It’s hard to have a “conversion experience” toward taxes (even if they go to a good cause) when we don’t rely on kindness and generosity to collect them, we use the law to force people to give. That may not sound “nice” – but it’s true. The punishment for not paying taxes is legal, not social.

              Not saying that to some degree that isn’t okay – obviously some taxes are necessary for maintaining society. But the notion that rich people should just pretend that they have a choice in the matter is a bit crazy. Because they don’t have a choice. You’re asking them to get the pleasure from giving generously to help people when they aren’t actually choosing to give. And they have no choice in where their money goes, or how well it is actually used to help people.

              The “demand” language is true regardless of whether you already think they pay their fair share or not. You can’t “request” that they pay more taxes. If you pass the law, you are mandating it. You could “request” that people donate more, which happens all the time in a healthy way. But that respects the freedom of each person to choose which causes are most deserving, rather than deferring to politicians’ immaculate judgment.

              You ask if the bottom 60% are always wanting more. Many of us aren’t. But by asking for higher taxes, isn’t that exactly what is happening? Asking for higher taxes on the only 40% that pay taxes (according to CBO) by saying they’re not generous enough is really asking for higher transfers for us in the 60%, yes? Maybe “takers” is a loaded word, but “receivers” is factually accurate according to the CBO.

              Who gets to decide that wealth “distribution” is “unhealthy”? What standard of wealth distribution is healthy? Why should it concern me that someone else makes more than me, unless I believe that wealth is the source of happiness? My well-being does not depend on my wealth relative to my friends unless I let it.

              Makes me think of a country song I heard on the radio:
              “We all want what we ain’t got,
              Our favorite doors are always locked.
              On a higher hill with a taller top,
              We all want what we ain’t got.

              We ain’t happy where we are,
              There’s greener grass in the neighbors yard.
              A bigger house and a faster car,
              We ain’t happy where we are.”

              • I’m discouraged that we have lost our sense of the social contract, that we together have agreed to taxation as a way of promoting the general welfare.
                Isn’t it a common consensus among economists that the current income equality isn’t healthy? I suppose ultimately the decision as to what is a healthy/unhealthy distribution is to be made by our Congress.

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