As part of ourApril 2011 newsletter, I  wrote an article entitled “So Who’s Paying the Taxes?”  This article  summarizes information posted by the IRS asSOI Tax Stats – Individual Income Tax Return (Form 1040) Statistics, highlighting the  following demographics of who is paying federal income taxes:

  • Top 1 Percent: To be in the top 1 percent of filers, your AGI needs to exceed $380k.  This group of taxpayers currently reports 20% of the country’s income and pays 38% of the personal income taxes.
  • Top 5 Percent: Tax returns showing AGI of at least $160k made the top 5 percentile of all filers.  In 2009, these taxpayers reported 35% of the country’s income, but paid 59% of the personal income taxes.
  • Top 10 Percent: Anyone reporting AGI in excess of $114k would be in the top 10 percentile.  This group reported 46% of the country’s income, but paid 70% of the personal taxes.
  • Bottom 50 Percent: The bottom half of the income reporting population paid just 2.7% of the personal income taxes.

I closed the article ended by asking, “Can a tax system survive when only half the population pays into it? “

Well, something  in this provocative question triggered the hot button within one of our readers,  and here is the e-mail that I received from him.  (This person subsequently gave me permission to post  his e-mail on MDTAXES.)

 

I read your latest newsletter with interest.  What most captured my attention was the section “SO WHO’S PAYING THE TAXES?”.  You began the section referencing an article from the New York Times that GE, who earned more the $14 billion dollars in profits [$5.1 billion made in the US], paid no corporate income taxes (presumably in 2010).*  You then ended the piece asking us “Can a tax system survive when only half of the population pays into it?  Stay tuned.” I found the question to be misleading.  While almost half of the US population doesn’t pay income taxes, they certainly pay into the “tax system”.  Most working people are subject to sales tax, state income tax, property taxes, municipal taxes, Medicare tax, FICA, etc.  Your question completely ignores these significant contributions.  “The Bottom 50%” pay only 2.7% of income taxes by virtue of the graduated nature of the system and by realizing deductions just like wealthy individuals and corporations.  The newsletter’s question to me inferred that “The Bottom 50%” are perhaps getting a free ride on the wealthy and perhaps are the cause of the tax system’s unfairness and brokenness.  I reject these suggestions.  The problem is much larger and nuanced.

Perhaps you should have posed more questions for us, such as:

  • Can a tax system survive when many top corporations paid no taxes in 2010?
  • Can a tax system survive when corporations funnel billions in profits overseas to avoid taxation and then are allowed to write off overseas losses against domestic profits?
  • Can a tax system survive when corporations unfairly manipulate the system in its favor to shield assets from taxation and reap government subsidies?
  • Can a tax system be deemed fair when it subjects private citizens to the alternative minimum tax and not [free-speech loving] corporations?
  • Can a tax system survive when adjusted wages for middle class families have remained stagnant for more than a decade while at the same time the wealthiest Americans and corporations have seen substantial gains?

The relative fairness of the system depends upon the lens through which it is viewed.  Perhaps in a future newsletter you can inform us of the average total marginal tax burden realized by Massachusetts’ citizens broken down by incomes.  This would provide a more comprehensive understanding of the contribution almost everyone certainly bears to our tax system.

I’m not an accountant and have limited education in economics.  So, I rely on you as an objective resource for information and support in helping me make decisions.  In this instance, I think you have failed me and perhaps other readers—not so much for giving direct misinformation but in your framing of the facts.  There is no shortage of sources for heavily biased information.  You could better serve your readers as a resource for sorely needed facts and information, and then leave us to draw our own opinions.

Andrew’s Response:

i appreciate the honest feedback, and will try to incorporate this constructive criticism in future articles.

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