Economics, Taxes and Spending

11 things Obama didn’t tell you about tax fairness last night

President Barack Obama talked a lot about taxes and fairness in his State of the Union speech last night. Like this bit:

But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes. … We don’t begrudge financial success in this country. We admire it. When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. …Tax reform should follow the Buffett rule: If you make more than a million dollars a year, you should not pay less than 30 percent in taxes.

Are wealthier Americans really not paying their fair share? Here are some numbers on income inequality:

1. The top 1 percent pay 36.7 percent of federal income taxes and earn 16.9 percent of adjusted gross income (as of 2009).

2. The top 0.1 percent pay 17.1 percent of taxes and earn 7.8 percent of adjusted gross income.

3. The average income tax rate for the top 1 percent is 24 percent. The bottom 50 percent? Just 1.85 percent.

4. The bottom 50 percent pay just 2.3 percent of income taxes.

5. Buffett chose to leave most of his fortune to the Bill & Melinda Gates Foundation, avoiding a 55 percent estate tax.

6. Buffett actually pays 50 percent tax since capital gains and dividends taxes are a double tax on corporate income.

7. Taking half of yearly income from every person making between $1M and $10M would only decrease the nation’s debt by 1 percent.

8. Taking every dollar from everyone making more than $10M per year would only reduce the nation’s deficit by 12 percent and the debt by 2 percent.

9. IRS will give out roughly $110 billion in “refundable” tax credits this year to households that pay no income taxes.

10. If taxable income in the 35 percent bracket were taxed at 49 percent, federal income tax revenues would be just $78B higher (Tax Policy Center).

11. To get the deficit to 2 percent by 2020 using Obama’s budget baseline, it would take a 91 percent top rate by taxing just the rich.

12 thoughts on “11 things Obama didn’t tell you about tax fairness last night

  1. “There are three kinds of lies: lies, damned lies and statistics.” – Mark Twain

    It’s not about fairness; it’s about growth.

    What all your funny numbers don’t explain is that, since we’ve had two competing economic systems over the past 90 years or so, the period of income redistribution, (roughly 1933-1980) vastly outperformed the periods of economic accumulation (1921-1932 and 1981-present), as measured by per capita GDP growth, adjusted for inflation. Further, periods of high marginal income taxes have outperformed periods of low marginal tax, and Democratic presidencies and congresses have enormously outperformed Republican presidencies and congresses.

    Bottom line, Voodoo Economics doesn’t work. The rich aren’t paying nearly enough tax to re-invigorate the economy, your irrelevant statistics notwithstanding.

    • Dude take an economics class then get back to me. Tell me how Eisenhower redistributed anything. And check on how good the 70′s were for growth with LBJ’s great society. You are so wrong its laughable.

      • Kort: I’ve taken 12 college economics classes, so you can pick on me. There is no correlation between tax rates and economic growth and there are 70 years of data points. From 1963 to 1968 GDP went from 618 to 984 in 1969 that’s 60% how is that bad? We did grow fast during the 50′s at a 70% marginal rate and the forty’s @ 94%. The reason that the high taxes don’ t slow the economy is that the tax money just gets recycled back to the wealthy. The government taxes and spends and the profits from the spending accumulate with the wealthy. During WW2 the government taxed Henry Ford @94% and then turned around and bought a bunch of jeeps and airplanes from him. The redistribution of income recently has been a problem because when you shift income from poor people to richer people the loss of income or the poorer people causes marginal borrowers to default on loans the loan defaults work their way through the economy making everyone poorer.

        • Kennedy lowered the top marginal tax rate in 1964 which correlated with the increase in GDP that you state. GDP growth in the 50′s were slower than the post war period hence Kennedy’s eventual decrease in taxes.

          Your major assumption here is that the government is a better allocator of assets (tax money) that the private sector. Why should Henry Ford be the one who benefits when he builds jeeps. Do you know how many aircraft carriers were ordererd in 1942? The answer was 24. Japan started the war with 10, America had 7. Obviously the builders of the carriers benefitted a lot.

          It is the level of spending that matters. If the Federal government decides to spend money, there is no difference to the economy whether that money is gathered via taxes or via bond issuance. It comes from the market and spent by the government.

        • David,
          I happen to teach Economics at a college. Can you list the 12 college level Economics classes you claim to have taken over the course of 4 years?

    • Rokkitman – you’re engaging in a bit of historical/statistical cherry picking. The period of 1933-1980 largely covers a time when of course GDP growth per capita would rise higher. (1) You start with a low baseline by selecting the Great Depression as your starting point (2) the post WWII decades were characterized by America being almost the only market economy still standing, and (3) during the Cold War half the world’s nations weren’t even in the GATT, aka the global free trading system. The US thus had huge economic advantages. Now the world is more competitive. If you think that higher redistribution correlates to higher per capita GDP growth – how did all those communist economies pan out? How’s it going for European socialist economies like Greece that didn’t implement welfare state reforms like Germany and the Nordics?

      • @Please: Can you point to a country with extreme inequality that has done well economically? There isn’t a good correlation between inequality and growth. There is a good correlation between inequality and political instability. How did those communist countries pan out? Well how about China?

  2. What rokkitman does not understand is that it took a World War, with 65 million dead and total decimation of everyone else’s industrial infrastructure, to give the U.S. a chance to afford its redistribution scheme. As the rest of the world rebuilt and competed, the cracks in that mindset have grown to chasms.

    • Bingo! I always love when those that favor of higher taxes point to the 1940s to 1960s. They ALWAYS remember the 90%+ marginal tax rate but ALWAYS forget that the bottom rate started at 20% or higher.

      CHART: U.S. Income Tax Brackets by Income (1910-2010)

      These same individuals that pine for the “good ol’ days” of high taxes forget that the United States was the SOLE economic powerhouse. German, France, the U.K., Japan, and most of the industrialized world was destroyed either by the Nazis or by the Allies. The Soviet Union and China were enslaved under Communist regimes that directly or indirectly killed tens of millions of their own citizens. India embraced Socialism. Through the Marshall Plan, the U.S. directly helped rebuilt Europe. Likewise in Japan under MacArthur and the post-War occupation.

      Those that pine for the 1950s fail to acknowledge that the world has changed. Nations, just like organisms, must adapt or die. Even many former Communist countries have successfully adopted free-market mechanisms and have lifted tens of millions of people out of poverty.

      See more about the history of U.S. income taxes at …

      “Pretty Pictures and a Political Rorschach Test”

  3. I do not understand why everyone wants the so called rich to pay more. Them paying more will not help anyone else. It will only punish them. The problem is not taxes. The problem is spending. Out of control spending. for someone to suggest that any democrat president has outperformed any other president is stupid. To suggest that this president, who has put us 15 trillion in debt is out performing all other presidents would only be true in the negative. The control that government now has over everyone means that no one can every truly own anything. The government can always take it away. That was never the vision of our founding fathers.

  4. I am not a professional statistical whiz or any number cruncher I’m a doctor. It seems to me that the most annoying about aspect of the above posts are playing number nonsense. That is, the majority of people who are knowledgeabe also have difficulty converting their data to ordinary solid numbers and understandable data. Me thinks all this tacky blabbering serves primarily as a deliberate haze and economic pamblum, totally “useless economic speak.”

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