Federal Taxes: Debunking The Democrat Narrative

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.    

Biden's Bloated Budget and Massive Tax Grab

• Biden's fiscal 2024 budget will increase deficits and hike the national debt
• His tax proposals for business will result in offshoring of operations
• The president's plan targets energy production which will drive up prices
• The tax scheme includes a dubious effort to tax phantom income 

The most shameless political gimmick is to shriek: "Tax the rich!" Pandering politicians know few Americans will argue with the logic. Taxpayers dream soaking the wealthy will lower their own taxes. It never does. Still bashing billionaires is a sure-fire re-election gambit.

President Biden recently unveiled his massive $4.7 trillion tax plan with an eye toward his 2024 campaign. His complex proposals are designed to roll back President Donald Trump's tax cuts while daring Republicans to oppose a tax blood-letting of big businesses and billionaires

The president's strategists are counting on Americans tax illiteracy. The top one percent of America's wealthiest earners paid 42.3% of all federal income taxes, according to the most recent data.  The top 50% paid 97.7% of federal individual income taxes.  The bottom half paid 2.3%. Facts matter. 

Despite Biden's rhetoric, America's most prosperous are paying their fair share.  It is disingenuous and not factual to claim otherwise.  If the president was honest with Americans, he would simply admit his   massive tax hikes are needed to fund his deficit-busting $6.5 trillion federal budget for fiscal year 2024. 

Biden's claims his budget will cut deficits is a sham. The non-partisan Congressional Budget Office projects deficits will average $2 trillion per year from 2024 to 2033. Since his first budget, Biden's spending will increase the nation's public debt to $50.7 trillion by 2033, nearly 106.3% of GDP.

Under the Biden tax plan, American businesses and high-earners would pay among the highest taxes in the developed world.  Although the president tosses word salads about going after those filthy rich billionaires, his tax increases are aimed at Americans earning $400,000 and up.   

The non-profit, independent Tax Foundation weighed the impact of the proposals against tax rates of member countries in the Organization for Economic Co-operation and Development. The comparisons underscore the titanic nature of Biden's tax regime. 

America's corporate marginal rate on corporate income would increase from 25.7% to 32.2%. The OECD average, excluding the U.S. is 22.8%.  The combined integrated rate on corporate income would climb from 47.3% to 66.9%, compared to the OECD average of 41.%.

This means U.S. firms will be at a competitive disadvantage with companies in other countries.  As past history shows, American corporations will be incentivized to move operations offshore where taxes are lower.  The result will be job losses in the U.S. at a time when companies are already cutting payrolls.

The plan raises the current top marginal rate on individual income to 45.4%, compared to the OECD average of 42.6%.  Many households earning $400,000 and over will face top tax rates of 50% when the federal rate is combined with state income taxes. 

The marginal tax rate is the amount of additional tax paid for every additional dollar of income. As an example, a 10% marginal rate means that 10 cents of every additional dollar earned is confiscated by the government.  An average tax rate is the total tax paid divided by the total income earned.  

The Biden tax scheme includes nearly doubling the tax on capital gains income from 29.1% to 49.8%.    Americans who sells stocks, bonds, real estate or other investments will have to give Uncle Sam almost one-half of any gains.  That will discourage individual investments in stocks. 

Perhaps, the most odious part of the Biden blueprint is a tax on phantom income.  This contrivance calls for taxing unrealized capital gains with a 25% minimum tax.  What this means is that if you hold investments that have increased in value, that amount will be taxed even though you haven't sold any.

Biden's daft plan also punishes the oil, gas and coal production sectors with $100 billion in tax increases. For example, his deal with the tax Devil includes repeal of expensing tangible drilling costs for labor, equipment, surveys and other items.

Those are just the highlights.  There are a myriad of other taxes aimed at businesses, the economic engine of the American economy.  Higher taxes on business are always paid by the corporation's customers through higher prices on products and services. 

The gross (pardon the pun) total of all those tax increases is $4.7 trillion.  That is the largest tax hike in history in terms of dollars.  Media fact-checkers are trying their best to cover up for Biden by claiming it is not the largest if you compare the new taxes as a percentage of GDP.  

However, even if you accept the fact-checkers skewed logic, the only plan that ranks higher as a percentage of GDP is the Revenue Act of 1942.  Those taxes were needed to pay for the military buildup after the U.S. declared war on Japan and Germany.  That makes the comparison unreasonable.

If President Biden is serious about tax fairness, he should offer a plan to simplify taxes. His reform does the opposite. Even worse, the tax hikes on businesses will cripple economic growth, encourage U.S firms to ship jobs overseas, raise energy prices and burden consumers with even higher prices.

The president's political budget and tax stunt deserve an ignominious burial in the halls of Congress.  Then serious work can begin on a bipartisan fiscal budget that maintains tax equity, reduces deficits and supports a prosperous economy for all Americans.