Political theater is hogging the spotlight as Congress grapples with the issue of federal income taxes. The actors in Washington are repeating familiar lines. Tax cuts benefit the oligarchs and billionaires. The wealthy don't pay their fair share. The tax burden falls on the shoulders of the little guy.
Leading roles are being played by Sen. Bernie Sanders and Rep. Alexander Ocasio-Cortez. The Democrat duo are barnstorming the hinterland braying about a "government of the billionaires, by the billionaires and for the billionaires." The rich are to be scorned and their earnings confiscated.
The truth is without millionaires and billionaires the federal government would run out of money. But class warfare has always been viewed by Democrats as a winning political strategy. Personal success is permissive as along as your income doesn't cross the border into seven figures.
Taxes are on center stage because of the impending expiration of key provisions of President Trump's 2017 Tax cuts and Jobs Act. Republicans are pushing legislation to make the current taxes permanent, while Democrats are characterizing the package as a pay off to the wealthiest.
Facts are stubborn reminders of the progressive nature of America's tax code. The more money you make, the federal government takes a larger share of your income. The 2017 legislation reduced taxes for most Americans, including those in the top 1% of the income bracket.
What Democrats and their media allies are loath to admit is the Trump tax cuts benefited most those in three of the bottom four income brackets. Included are Americans who earn $12,250, $49,750 and $106,000. Raising their tax rates would hurt the middle class.
If the current tax cuts are not renewed and rates revert to 2016 levels, 62 percent of tax filers would experience increases in their personal income taxes in 2026.
Those who rail about reductions in taxes for high earners ignore history's lesson. Even as taxes have been reduced for the top tax bracket, their share of the income tax burden has grown. Conversely, the bottom half of earners share of the tax burden has sharply declined. Those are indisputable facts.
In 1980 the top marginal rate was 70% for the wealthiest 1%. They paid 19% of all federal income taxes. Since then, their share of the tax burden has grown, even as the top marginal rates were lowered. At the same time, the tax share of the bottom 50% has declined from 7% in 1980 to 2.96% in 2022.
The latest Internal Revenue Service data from 2022, shows the top 1%--those with incomes over $663,164--paid 40.43% of all federal income taxes. The current tax rate is 39.6% for top earners.The top ten percent of taxpayers--those earning $261,591 and above--paid 76% of personal income taxes.
Including the top 25%, the percentage of taxes paid reaches 89%. The IRS collected 97% of all personal income taxes from the top 50%. Of the 161.3 million returns filed for the tax year 2022, a total of 50.7 million individuals paid no federal income tax.
Liberals are quick to point out that taxpayers whose income are in the bottom 50% pay more in payroll taxes than income taxes. Employers collect these taxes from wages and pay the money directly to the IRS. Payroll taxes fund Social Security and Medicare.
But that doesn't change the fact that the top 1% paid $855 billion dollars in personal income taxes in 2022, by far the largest share of any marginal tax rate group. The wealthiest earned 22.4% of all the personal income yet paid nearly twice that percentage in taxes: 40.43%.
Tax fairness depends on your definition of what is equitable. For historical perspective, the highest marginal tax rate was 94% during 1944. From 1945 until 1963, it was 91%. By 1964, the rate fell to 77%. For the tax years 1991-1992, the rate dipped to 31%.
Throughout those years, the top earners always paid the lion's share of taxes to Uncle Sam.
The Trump tax cuts also lowered the corporate tax rate from 35% to 21%. Reverting to the higher rate would risk increasing inflation. Consumers ultimately pay corporate taxes. Firms price their goods and services based on all their costs, including taxes. Demagoguery doesn't change that fact.
America does not have a revenue problem. Spending is the chief issue. In the fiscal years of 2020-2024, the federal government spent $38.35 trillion. The gusher created a deficit chasm of $10.78 trillion over the same period. The national debt has ballooned to $36.22 trillion and counting.
But even a suggestion of budget cuts triggers caterwauling throughout the halls of Congress. People will go hungry if a smidgen is sliced from the federal government's budget. But unless the federal budget growth is halted, taxes will need to be raised every year to avoid runaway deficits.
As the Washington drama unfolds, ignore the rhetoric. This play acting is all about politics. Democrats want to wreck the Trump presidency by raising taxes which will sink consumer confidence and rattle the economy. Winning the midterms is the goal without regard to costs to American household budgets.
