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Thursday
Apr142011

Tax Brackets: Who Should Pay What to Fix the National Debt?

Comstock/Thinkstock(NEW YORK) -- Taxes are in the air. Tax day is approaching next week and one of the main sticking points of the entitlement reform debate that has been in the news this week comes down to taxes.

President Obama vowed Wednesday that he would not again extend Bush-era tax cuts for the wealthy. Americans generally support higher taxes for the wealthy. But when the argument is re-framed as higher taxes on small businesses and the middle class, the attitudes change. Many Republicans like House Speaker John Boehner have vowed that a deficit reduction plan cannot raise taxes.

Others, like Sen. Dan Coats, R-Ind., and Sen. Mike Johanns, R-Neb., have said everything must be on the table.

Turns out its been a pretty good couple of decades for the wealthy. A new analysis by the left-of-center Economic Policy Institute analyzes tax rates for the wealth over the past 22 years and finds that the tax rate for the wealthy have fallen much more than they have for average Americans.

The top one percent of American households paid about a 37-percent annual tax rate in 1979. By 1992 that rate was down to 30.6 percent. And by 2007, it was down to 29.7 percent.

The super-wealthy have done even better, according to EPI. They paid an average 26.4-percent tax rate in 1992 and a mere 16.6-percent tax rate by 2007. That means that the wealthiest Americans pay a lower tax rate than the average American. Why? The average American might make less money from traditional income -- salary from a job, say -- whereas the wealthiest make much of their income from investments. The top tax rate for long-held investments is much lower -- 15 percent -- than it is for regular income -- 35 percent.

President Obama and a Democratically controlled Congress voted to extend Bush-era tax cuts last December, arguing along with Republicans that the tax cuts should not expire amidst a recession.

The wealthy did better in the deal than did regular Americans. The average tax rate in 1972 was about 22 percent. It was slightly lower, 21.5 percent in 1992 and 20.4 percent in 2007 after all the Bush-era tax cuts were first enacted.

That’s why, argue the study authors, the federal government is in such dire economic state with the federal deficit.

“This diminished tax burden on the wealthiest has contributed to the historically low federal revenue levels we are seeing today, and in turn, to higher deficits. The Congressional Budget Office projects federal revenue in 2011 will total 14.8% of GDP -- the lowest level since 1950. At the same time that the tax burden has shifted away from the wealthy, this same top income group has enjoyed  massively disproportionate income gains,” according to the post by EPI analysts Ethan Pollack and Rebecca Theiss.

The top one percent of income earners earn 22 percent of all income and pay 40 percent of all income taxes, according to Chris Dubay, a tax policy analyst at the right-of-center Heritage Foundation. And taking money from the wealthy means they’ll take their money elsewhere, he said.

Copyright 2011 ABC News Radio







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