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Tuesday, June 17, 2008

Who Pays for Your Government?

Reposted from a few days ago, with slight changes.

Depending upon whom you ask, we either pay too much, or too little to support a government that is either too large or not large enough.

Conservatives want a smaller government requiring less tax revenue to support it, using the private sector to satisfy most of the needs of society, and a government that does only what people cannot do for themselves, such as providing for the national defense.

Liberals generally prefer to solve problems through government programs, rather than relying on the American people to do what is needed through private sector initiatives. This latter approach requires a larger federal bureaucracy that demands higher taxes to support it.

Over the 221 years since the U.S. Constitution was adopted our government has grown into a gargantuan tangle of agencies and departments that the Founders would not recognize, and in fact could never even have imagined. This monstrous government costs a staggering $2.63 trillion ($2,630,000,000,000) for the upcoming 2009 fiscal year. The late Senator Everett Dirksen is noted for commenting, “A billion here, a billion there, pretty soon it adds up to real money.” The federal budget is by his estimation much more than “real money,” given that we are talking about trillions, which are a thousand times more than billions. A trillion is such a large number that people have difficulty comprehending just how much money that is.

Realizing that our government costs $2.63 trillion might give some of us reason to doubt that we are getting our money’s worth, and of course the real problem is that somehow we have to pay for all of that government. Today, there are more than 304 million American citizens. When you do the math, each American’s share of the 2009 federal budget is in the neighborhood of $8,600.

Whether you believe that the government is too large and is too involved in our daily lives, or whether you think we need more federal programs that do even more for the people, $2.63 trillion dollars—or $8,600 per person—seems like a terrible burden for American to bear.

The United States tax system is set up so that people at the lower end of the earnings scale pay less than those who earn more, and quite a few pay no taxes at all. Americans are taxed on their adjusted gross income (AGI) according to a system of six tax brackets ranging from 10 percent to 35 percent. Actual tax computations defy an easy explanation, but in simple terms a person in the lowest bracket pays about 10 percent of his of her AGI to the government, and a person in the highest bracket pays about 35 percent of his or her AGI.

Under this system, the bottom 50 percent of taxpayers (69 million people) paid just 3.1 percent of the total tax bill in 2005. Those people had an AGI of $30,881 a year or less, and were in either the 10 percent or the 15 percent tax bracket. On average, those people paid $1,167 in taxes, well below their share. For every person that is excused from paying all or part of their share of the tax burden by virtue of their income level, someone else has to pay more than their share.

In 2005, the top one percent of taxpayers, those making $364,657 or more, paid 9.4 percent of all taxes. The top one percent consists of just 1,380,000 people, and this relatively small group paid three times more taxes than the 69 million people comprising the bottom 50 percent of taxpayers. This group is in the 35 percent tax bracket, paying more than one-third of their AGI to support the government.

If you had AGI of $103,912 or more, you are in the top 10 percent of wage earners, and that group pays 70 percent of all federal income taxes. There are 13,800,000 people in the top 10 percent of taxpayers.

According to the Tax Foundation, “despite the charges of critics that the tax cuts enacted in 2001, 2003 and 2004 favored the ‘rich,’ these cuts actually reduced the tax burden of low- and middle-income taxpayers and shifted the tax burden onto wealthier taxpayers.” Tax Foundation economists estimate that “for tax year 2004, a record 42.5 million Americans who filed a tax return (approximately one-third of the returns filed) had no tax liability after they took advantage of their credits and deductions.”

In America today we have a class of people who pay no income taxes at all that is increasing in size, and a class of people who are bearing the lion’s share of the tax burden that is shrinking. What is wrong with this picture?


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