Why Doesn’t Anyone Feel Remorse When it Comes to High Earners and Income Taxes?

Why Doesn’t Anyone Feel Remorse When it Comes to High Earners and Income Taxes?

A bad ass blogger, Financial Samurai, made a comment on my blog today that really got to me.  His comment was in response to my post Listing Most of Obama’s Proposed Taxes.  Sam, as his random blogger buddies who live across the country call him, said,

It’s one of those things where one should recognize that if they are paying $100,000 a year in taxes, they are probably doing OK for themselves.

Am I nuts because I believe that just because someone is making money does not mean they should be taxed to death?  I guess the definition of ‘to death’ is probably what is really at heart of this whole subject.

Who Pays the Income Taxes in the United States?

It shouldn’t surprise most that what most would consider high earners pay way more than their share of the income tax collected by the United States government.  Luckily I don’t have to do any work, The Tax Foundation does it for me:

I get that we have a progressive system, and I am not entirely sure that is wrong, but how long can you sustain a system where the top 1% of tax payers supports the bottom 95%?

Percentage of People who Don’t Pay Any Income Taxes

The Tax Policy Foundation also provides us with the percentage of people who don’t even pay any income taxes.

2000 129,373,500 32,555,897 25.2%
2001 130,255,237 35,491,707 27.2%
2002 130,076,443 39,112,547 30.1%
2003 130,423,626 41,501,722 31.8%
2004 132,226,042 43,124,108 32.6%
2005 134,372,678 43,802,114 32.6%
2006 138,394,754 45,681,047 33.0%
2007 143,030,461 46,655,760 32.6%

Approximately one-third of tax payers have a negative or zero tax liability.  I am not blind to the fact that some of this may have to do with tax shelters and fraud, but one-third?

So we have a system that is highly progressive…and you should get how how I feel about it, but forget me (just for this post) how do you feel about the situation? Do you think the system can sustain itself at current levels?

Do you feel no remorse for high earners? Just because, they make more than you?  Don’t you strive to be that high earner, if so, will you just bitch when you get there?

17 Responses to Why Doesn’t Anyone Feel Remorse When it Comes to High Earners and Income Taxes?

  1. Howdy E-dog, that’s a great chart you highlighted! Thanks! Must highlight it in the next Katana for sure.

    I don’t feel “remorse” for high earners, I just feel high earners should just feel fortunate to be a high earner and not complain too much.

    My beef is with the convoluted system, which results in too much brain power wasted. A flat tax is the BEST way, and the fairest way for anybody above the poverty line.

    If you only make $50,000 a year, you only pay $7,500/yr in tax at a 15% rate. Take out ALL deducations and keep it simple.

    You WILL get more frustrated the higher the marginal tax bracket you earn, but you’ll also realize how fortunate you are. Just don’t look at the tax bill TOO MUCH, and you’ll be OK :)

  2. For YEARS I tried to get people to call me E-Dog! I MEAN YEARS. Instead they rocked out less polite nick names.

    I would love a flat tax (of course, I am not sure I’d still have a job with no estate taxes and all, but I’ll survive). But I still disagree with your high earners feeling fortunate.

    Yeah, if you got blessed with ridiculous strength and speed and are playing for my fav. team the Falcons OR if they are playing through the US Open (I was at the last year’s finals NUTS) – then you should thank your maker. But, I don’t believe those are the same as someone who is running their own business working 90 hour work weeks and making $150K/yr.

      • I have one buddy that calls me E-Wiggidy but that came after a long night of drinking. When I was much younger (wrestling high school days) I was called goat, but I think that had more to do with me being Greek and all lol.

        In th ened its either Evan or Ev…no real nick name my name is too short

  3. Agreed w/ Financial Samuri. A flat tax is the best way to go. People are always whining about equality, but did they forget about taxes? Tax rates are far from equal and punish people for striving to make more money. If a flat 10% tithe is good enough for God, I think a flat income tax should be good enough for everyone. (Yeah, I went there.)

  4. I think we should have a flat tax, but no income tax for anybody up to the poverty level for a family of four (and of course that amount would adjust yearly to account for inflation, and down for deflation…).

    Part of the perceived increase in the taxation of the upper 1% isn’t the tax system (Bush W, actually reduced taxes across the board), it’s because the top 1% now make more then they did in the past. Back 30 years ago, unions were stronger and the CEO and entrepreneurs didn’t make as much. Now that has changed. So, I’m with Financial Samurai on that point too… Those that make the real big bucks (annual income of $500,000 and up), should stop complaining and be very happy that they are rich!

    My biggest fear was that the taxation of the rich was going to get worse with the current government looking at that wealth segment with knives… Hurray for Massachusetts voters!

  5. OK, flat taxers. You can take out all the deductions, different tax rates, tax credits, AMT, etc. but that doesn’t solve the problem. The problem then becomes (and partly already is) – what is income?

    The Internal Revenue Code has hundreds of sections devoted to defining “income” already. That will only increase if “income” becomes the only interpretable line on a tax return.

  6. I’ve more and more liking the flat tax idea. I’ve succumb to the “dark side”. :-)

    Though, I don’t see this happening anytime in our lifetime. Too many political favors and jobs tied to the existing system. Can you imagine what would happen to of the accountants do with no income taxes to do? They would be staring at their abacus.

    I also think it would become obvious to the people in the US how our government wastes our money. You took in X, but yet spent 10 times more. The people that pay little or not taxes currently would be more concerned how their tax dollars are being spent.

    I can dream this would happen can’t I? :-)

    • Tell me again how a “flat tax” is not an “income tax”. (Full disclosure, I’m a CPA.)

      Say we do have a flat tax, starting 1/1/2011. What the tax base (i.e. taxable income you multiply your flat tax rate with to come up with your tax?)

      • Hi Kevin,

        Hmm I never said a flat tax isn’t an income tax. I said they (CPAs) wouldn’t have much work to do with a flat tax. Meaning it’s just 15% off your income and your a done.

        As far as idea of wanting a flat tax, you’ll have to as Financial Samurai as it wasn’t my idea. I’m just saying I think I’m beginning to agree with that statement.

    • The thing with a flat tax is you could potentially pay more taxes than our current progressive tax system. I have nothing wrong with it per se. I guess it comes down to would it be an increase for my family and not the other guys. Something tells me I would be paying less taxes with a flat tax.

  7. The benefits of a flat tax are it’s efficient and transparent. The reason you rarely see it is politicians like to tweak with the system to make various parts of the electorate feel they’re doing them a big favour. You can’t do that with a flat tax!

    I don’t like to see 33% of people not paying taxes. There’s an argument that everyone should pay *something* in tax, so they feel like part of the system, not a passive recipient.

  8. I think that you’ve making a common mistake, assuming that because high income earners pay a larger portion of the total tax bill, they are being taxed at higher rates than those with moderate income. There’s been research to indicate that, to the contrary, the tax burden on those who aren’t in the lowest income quintiles is effectively flat: http://www.ctj.org/pdf/taxday2009.pdf (Check out the first table, about one screen down; it shows the average income, average taxes, and the percentages of each total that are allocated to each quintile. The average total tax rate hovers around 27-33% for everyone above the bottom two quintiles.)

    Why, then, does the highest 1% of earners pay more of the overall taxes in this country than the lowest 95% of earners? Simply because they earn (much, much) more. Even with a flat tax system, the rich are still going to paying far more into the system than the less well off, simply because they have more.

    On the table, you can the see the median income for the top one percentage is ten times that of the ‘Next 5%’ (the ninety-first through ninety-fifth tax brackets; the top earners of the ‘other 95%’ referenced in your graph). Even if they pay identical rates, say ten percent, the top one percent is going to pay more, simply because $144,500 times one percent of the population is more than $14,400
    times five percent of the population.

    All of which is to say, no, I don’t really feel remorse for the tax burden faced by the rich, mainly because it’s about the same as mine, when calculated as a percentage of their income.

    As for the percentage of people who pay no taxes, that does frustrate me a bit. Of course, I’d guess that many, if not most of those people fall beneath the federal poverty line, and thus, by almost any standards, shouldn’t have to pay taxes, anyway. (Going back to the linked table, the median income of the bottom quintile is just about the poverty line for a single person ($10,830) and the median income in the second lowest quintile is below the poverty line for a family of five ($25,790). Given these facts, I’d say there’s probably a good chance that many of the tax payers are literally too poor to be taxed.)

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