The Tax Debate
President Obama has been making the case that some Americans with higher incomes are not paying their fair share of taxes. The lower tax rates that were passed in 2001 and 2003 will expire at the end of this year. And there is more discussion about tax reform—a major overhaul of the whole structure of federal taxes on businesses and individuals.
For all of these reasons, I expect that there will be a great deal of talk about taxes this year. It is important to start with facts, and I am adding a new section to my website called “Tax Facts.”
An overused but still true line in politics is that “everyone is entitled to their own opinion but not to their own facts.” Different people may well reach varying conclusions about what should be done, but we all ought to have available some of the key facts about the money that the federal government takes away from us in taxes.
Who is paying their "fair share"
We often hear that wealthy Americans and business owners are not paying their "fair share" of taxes, but here are some key facts about who is paying the greatest share of American taxes.
According to the Congressional Budget Office:
Income earners in the top 1% pay an average federal tax rate of 28.9%.
Those in the top 20% pay an average federal tax rate of 23.2%.
The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%.
The top 20% of income earners, those making over $74,000, make 50% of the nation's income but pay nearly 70% of all federal taxes.
The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. This group's share of taxes paid, 30%, is lower than the share of income they earn, 50%.
Letting The Current Tax Law Expire
Overall, if the 2001 and 2003 tax cuts are allowed to expire, we can expect to see:
Higher income tax rates:
- Increase the 10% tax bracket to 15%
- Increase the 25% tax bracket to 28%
- Increase the 28% tax bracket to 31%
- Increase the 33% tax bracket to 36%
- Increase the 35% tax bracket to 39.6%
Reinstatement of the “marriage penalty”
The child tax credit will be cut in half (from $1,000 to $500)
Higher investment taxes:
- Increase top rate on long-term capital gains tax from 15% to 20%
- Increase top rate on qualified dividends from 15% to 39.6%
Elimination of certain exemptions and deductions:
- Phase-out personal exemptions – a hidden tax increase of 0.8% for affected families
- Limit itemized deductions (such as home mortgage interest, state and local taxes, and charitable contributions) – a hidden tax increase of another 1.2% for affected families
- Combined, these hidden tax increases raise the top marginal tax rate on income (including dividend income) to 41.6%
Resurrection of the Death Tax – currently repealed – at rates as high as 55%
Alternative Minimum Tax will ensnare 15 million taxpayers, up from 4 million in 2009
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