Tuesday, December 17, 2013

Taxing the Rich More Heavily Is Not Fair to the Poor

It is argued by the Obama Administration that higher income individuals are not paying their fair share of in-come taxes. They contend that raising tax rates for higher income individuals will not only produce a fairer taxing system, it will move the U.S. to a more equitable income distribution.

In 1996, taxpayers earning more than $200,000 paid an average tax rate that was three times that of workers making less than $50,000, and two times that of taxpayers earning between $50,000 and $200,000. By 2011, those making more than $200,000 paid almost seven times the average tax rate of taxpayers earning less than $50,000, and 2.5 times that of workers earning be-tween $50,000 and $200,000.

As a result of this boost in relative rates for the “rich,” the Congressional Budget Office (http://tinyurl.com/pxzutsz ) concluded that the “top 40 percent of income earning households actually paid 106.2 percent of the nation’s net income taxes in 2010,” by supplying $18,950 in what the CBO called “government transfers” or negative income taxes for households in the bottom 40 percent of earners.

But how did taxing the rich more heavily affect income inequality? Since 1996, the U.S. Gini coefficient, which measures income inequality, has climbed each year indicating that income inequality in the U.S. has risen. Furthermore in 2010 as measured by Gini coefficients, the ten states with the lowest income tax rates (Alaska, Wyoming, New Hampshire, Wisconsin, Washington, South Dakota, Nevada, Tennessee, Texas and Florida) had the greatest income equality, and the ten states with the highest income tax rates (Minnesota, Maine, New York, Vermont, DC, new Jersey, Iowa, Oregon, Hawaii and California) had the greatest income inequality.

Thus, the policy of “taxing the rich” did not contribute to income equality, and there is at least evidence supportive of the hypothesis that taxing the rich more heavily contributed to greater income inequality. In conclusion, raising income taxes on the rich is neither fair, nor helpful to the non-rich. Ernie Goss

1 comment:

Deborah Thornton said...

Dr. Goss - I would like reprint permission for this article. For the January 2014 Public Interest Institute Facts and Opinions. Please e-mail me at dthornton9@aol, with your permission.
Thank you!
Deborah Thornton
Editor, F&O, PII