Poltical Rhetoric and Income Taxes. Who Really Pays What?

When ever I think about or discuss politics, I find myself in something of an unusual situation. As a Unitarian Universalist I am certainly a religious liberal, and in some ways I am also a social and political liberal. I am however, not a typical liberal in the sense the word is usually used in discussing American politics today. I am more of a "Goldwater" Republican and libertarian than anything else, though I register as an independent. One issue in particular that I struggle with at times is taxation. Economic Justice is a major issue for most UUs, and the political struggle over taxation in America has always been a major, contentious part of that issue. On one hand, as a libertarian, I am innately mistrustful of the government, and what the government plans to do with my money. I don't like taxes much, and feel small government is good government. On the other hand, as a UU, my "liberal" side worries about the increasing divide between the haves and have-nots in this country. We have all certainly heard the claims made by many in the Democratic party that our tax code currently favors the wealthy over the poor and middle classes. In fact it is certainly going to be a major campaign issue for the Democratic party in the upcoming election. I have heard a lot of claims and rhetoric from both sides of issue, and I have become cynical enough (hard not to be these days) to have my doubts about any claim made by any politician of any ideology, especially in an election year. So I decided to try and look up the facts myself, and draw my own conclusions. After some digging online, I discovered a report from the Congressional Budget Office. The CBO is a member of the Legislative Branch of the government and its responsibilities include "projecting the budgetary effects of proposed legislation. The main goal is to provide Congress with objective, timely, nonpartisan analyses needed for economic and budget decisions and with the information and estimates required for the Congressional budget process. This includes projections on the effect on national debt". The report, which uses data from 2004-5, has some very interesting numbers. Here are some examples:

Looking at the "Shares of Federal Tax Liabilities Table) The top 1% of all Federal Income Tax Payers in 2005 (that is anyone earing over ~$1.58 million a year, about 1.1 million households) pay 27.6% of ALL Federal Taxes and 38.8% of Individual Income Taxes. The top 5%, ($520,000 and up, 5.8 million households) pay 43.8% of All Federal Taxes, and 60.7% of Individual Income Taxes. The top 20% ($231,000 and up, 23.1 million households) pay 68.7% of All Federal Taxes and 86.3% of Individual Income Taxes!!! The lowest 20% (people who earn less than $15,900 a year, 24.1 million households) pay 0.8% of all Federal Taxes, and -2.9% of Individual Income Taxes. The second quintile (people who earn between $15,900 and $37,400, 21.9 million households) pays 4.4% of all Federal Taxes and -0.9% of Individual Income Taxes. The middle quintile ($37,400-$58,500, 22.2 million households) pay 9.7% of all Federal Taxes, and 4.4% of Individual Income Taxes.

When the top 10% of Americans in 2005 paid 72.7% of all Individual Income Taxes and 54.7% of ALL Federal Taxes and the bottom 20% paid -2.9% of all Individual Income Taxes 0.8% of all Federal Taxes, I find it hard to beleive that our current progressive income tax system somehow favors the wealthy. Unless by "favor" one means having 10% of Americans pay half of all Federal Taxes.

I still believe the growing gap between the poor and the wealthy is becoming a serious problem in this country, but having looked at the numbers, I can't buy that somehow our income tax system is part of the problem. If it is "unfair" to anyone, it's "unfair" to the affluent. I'm really not sure what the politicians making those claims want. should the top 10% of Americans pay 90% of all Federal Taxes? 100%? Or is it just cynical populist politics? We already have the Federal Estate Tax which "serves to prevent the perpetuation of wealth, free of tax, in wealthy families". I wish I had a good answer to help deal with the problems of economic injustice and this growing income gap, but I don't think further shifting of the tax burden onto the Americans who are most actively fueling our economy is the right (or fair) solution.