“Today, we have a tax system which unfairly targets the poor and the middle class while leaving the ultra rich and large corporations largely untaxed.”

I didn’t say that the tax system targeted ONLY the poor, I said that it “unfairly targets the poor AND THE MIDDLE CLASS while leaving the ULTRA RICH and large corporations largely untaxed.”

Statistics are easy to misunderstand and easier to misinterpret if you leave out important information, as you have done.

Conservative interpretations of our tax policy, like the Joint Economic Committee Research Report #109-20 of October 2005, claim that our tax system is highly progressive in terms of highest earners paying the most, (they show that the top 50% of income earners paid 96% of all income tax, and the bottom 50% paid just under 3.5%), which you appear to have pulled your figures from. But if you look at the actual income figures for those groups, one can hardly consider those earning the cut-off earnings of the bottom 50% of $29,019 or in that general range to be a middle income earner.

By the way, as defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the average poverty threshold for a family of four in 2004 was an income of $19,307.

According to the U.S. Census Press Release of August 30, 2005, the median income between 2003 and 2004 was $44,389. That’s $15,370 more than the cut-off income for your 50% statistic.

As long as you are throwing around worthless statistics consider this. If Bill Gates walked into a room of 99 people when he was at his peak net worth of about $100 Billion, then each person in that room would have an average net worth of about $1 Billion. That would be a true statement, but also completely unrepresentative of the true wealth of the other 99 people.

Income taxes are actually regressive because taxes take more as a percentage of an individual’s total income when they are in lower earnings categories. The tax rates are applied to earned income. So what you see in comparisons of who pays the most in earned income taxes, doesn’t even take into account the much larger incomes from investments that aren’t being taxed at such high rates or aren’t being taxed at all and aren’t being measured. When a person has investment income or capital gains over a long period of time, the capital gains aren’t taxed until the property is sold and the gain realized, which may be decades after the original purchase and the increase in value appreciated over that time tax free, thus giving the owner the advantage of having their assets continually working for them, increasing in value every year without taxation until the asset is finally sold, when the value may have gone up hundreds of thousands or even millions of dollars in value. If the asset is never sold, and is only passed on to an heir, without the estate tax, it may never be taxed at all.

The other factor that is left out of these discussions is the fact that fees which are nothing more than a tax by another name, or sales taxes, or voter ID tags which require a fee to be paid (which amounts to nothing more than a poll tax on the poor), and Social Security which only collects on the first $90,000 of an individual’s earnings, and property taxes, gas and utilities, all collectively take a higher percentage of a lower income earner’s earnings, than someone who earns so much that all of those expenses are nothing more than chump change. There are only so many homes you can own, so many wardrobes you can own, so many shoes you can own, so much jewelry you can own, so many cars you can buy, or so many meals you can eat. When you earn so much that all of those expenses are inconsequential, then taxes are really a very small percentage of your total earnings.

In fact, the truth is that the people under 99% percentile based on reported income rankings, pay 65.84% of the total personal income tax while earning less or about the same as they have for the past three decades. At the same time while the top 1% of income do pay 34.27% of the total personal income tax, the super rich have seen their tax rates drop from 70% to 35%, and their capital gains taxes drop from 28% to 15%, while their incomes have gone up from 100 to 1000 times on average over the same period. In addition, the super rich pay taxes based on what they voluntarily report, and not necessarily on what they actually have as income, (since most of their income is buried under layers of corporate shields, so it is very unlikely that their income is at all accurately reported, or that they actually pay the 35% rate on all that they actually earn).

When you look at these figures, remember you are looking at the total number of income earners split into percentiles based on income ranking. You are NOT looking at the total amount of income divided into percentiles and proportionately apportioned to taxes paid.

When the tax alarmists complain that the top 1% of the income earners pay 34.27% of the total income taxes collected, and state that their taxes are too high, they are misrepresenting the data. The fact that fewer and fewer people are paying more and more in taxes even with their tax rates being drastically reduced just demonstrates how much more money they are making, over the same period of time, in comparison to the rest of the country’s population.

Enron Corporation, one of the largest corporations in the world, prior to their bankruptcy filings after the scandals broke, only paid taxes one year out of the last five years prior to their bankruptcy. They aren’t the only ones who’ve done this and corporations have dropped significantly as a source of taxes for federal and state coffers. Companies off- shoring their headquarters to avoid corporate taxation just means that the middle class end up shouldering even more of the burden.

Middle Income
Financial aid administrators, educators and public policy advocates often talk about middle, upper and lower income families, but strangely enough there is no official definition of these categories. Even the US Census Bureau doesn’t have an official definition of middle income, although they tend to use the middle quintile, which is families with annual incomes between about $40,000 and $65,000. In some cases they’ve expanded it to include the fourth quintile, yielding a range of $40,000 to $95,000. Sometimes the range includes the second, middle and fourth quintiles, yielding an income band of $25,000 to $99,000. A lot depends on who is doing the asking and what point they are trying to make.
Nobody seems to use the middle tertile, which would yield a clean split into lower, middle and upper income strata.
Some people would argue that middle income should be defined by standard of living, so that someone who lives in an area with a high cost of living (e.g., Boston, San Jose, etc.) could be middle income even at $165,000, even though that income would put them in the top 5% of wage earners nationwide. Although there could be some geographic adjustments to the definition, it should not extend to the granularity of middle income within a gated community. (”Keeping up with the Joneses is just so difficult on $250,000 a year.”)
Some people refer to the six tax brackets as poor, lower income, middle income, upper income, rich, and wealthy. The middle income bracket in that sense ranges from about $30,000 to $70,000 for single and $60,000 to $120,000 for married. But tax brackets are completely arbitrary, and have very little to do with the difference between lower, middle and upper income families.
Low income has often been defined in terms of the US Census Bureau’s Poverty Thresholds. Common definitions include 125%, 150% and 200% of the poverty line for a family of four. This would yield lower bounds on middle income of about $24,000, $28,700 and $38,300, respectively.
Another common definition for low income is half the median family income for a family of four. The US Department of Housing and Urban Development used this as the definition of “Very Low Income” in FY 1999 - FY 2005 Excel file with 4-Person Very Low Income and Median Family Income Estimates.
The National Center for Education Statistics defined middle income to range from $35,000 and $69,999 in 1994, based on the 1996 NPSAS database. The lower end of the range corresponded roughly to the implicit income cutoff for Pell Grant eligibility. (Based on a maximum Pell Grant in 2005-06 of $4,050, the current cutoff would be approximately $47,500. The maximum income at which a family of four with one in college would qualify for maximum Pell Grant is $25,500.) The upper boundary was based on the income level at which most undergraduates would be able to afford to attend a public research institution without needing subsidized loans. These definitions are necessarily circular in nature. See Middle Income Undergraduates: Where They Enroll and How They Pay for Their Education, NCES 2001155, July 2001.
http://www.finaid.org/educators/middleincome.phtml

In 1977, the richest 1 percent of Americans had as much to spend after taxes as the bottom 49 million. Just 22 years later, in 1999, the richest 1 percent – about 2.7 million people – had as much as the bottom 100 million Americans. But even more telling was that in 2000, just 28,000 men, women and children of the highest income had as much income as the poorest 96 million Americans. Each group represented 5% of all reported income that year.

Those in the top 1 percent saw their average income, adjusted for inflation to 1999 dollars and after income taxes were paid, more than double from $234,700 in 1977 to $515,600 in 1999. Meanwhile, the 55 million Americans in the poorest fifth of the population lived in households whose average income fell from $10,000 in 1977 to $8,800 in 1999.

The Center for Budget Priorities calculated these figures from the data gathered by the Congressional Budget Office since 1977

The bottom 90% of income earners earned, on average $25,035 in 2000, which was $25 less than they earned three decades earlier.

On the other hand, the top ten percent of Americans appear to have done very well since 1970, increasing their share of national wealth from just under 33 % in 1970, to just above 48% in 1998.

Yet, when you look more closely at the numbers you will see that

the top 90-95% of income earners had earnings that were flat.

The top 95-99 percent had their income grow by 19.5%.

The top 1 percent (or 1.3 million households), earned more than one fifth, or 20% of all income in the country.

Breaking down the top 1% into even smaller divisions, you will find that the bottom half of the top 1 % had their share of income grow by 47%, which was more than twice the share of the group just below them on the income ladder.

Those between 99.5% to 99.9%, had their share grow by 90%. Those between 99.9 to 99.99 percent, or just 120,000 households had their share of national income more than triple, growing 227 percent.

Finally, the very top rung, the richest 13,400 households, who made more than 99.99 percent of their fellow Americans, increased their share of the nation’s wealth by more than five times what it was in 1970. But when their income share was compared to those at the top 90-95%, it had increased 1,000 times faster.

The average income of all households in 2000 was $42,700, while the 13,400 households as the very top had an average income of $24,000,000 each or 560 times average. But in 1970, the very top group earned about 100 times average.

Average income for the bottom 99% of all income earners in 1970, was $32,763 (adjusted for inflation), and by 2000 it had grown to only $35,473, an increase of only $2,710.

In comparison, the top 1/100 of 1 percent had an average yearly income of $3,641,285 in 1970, and $23,969,767 in the year 2000, an increase of $20,328,482.

In other words, the top 13,400 top income households in America earned as much as the bottom 96 million Americans in 2000. But in 1970, the poorest THIRD of all Americans had more than ten times the income of the super rich.

Four out of five Americans are making less or are no better off in 2000 than in 1970.

During this time period, taxes have grown for the poor and the middle class, since most of the money paid by most wage earners goes to Social Security, the maximum increasing from $327 to $4,724 (those figures doubling if you include the employer’s contribution).

On comparison, the top income bracket in 1970 was 70%, by 2000 it had fallen to 39.6%, and by 2003 it was only 35%. In addition, the tax rate on capital gains, the source of more than half the income for the super rich, has dropped, from 28% in 1987, falling to 20% in 1998 and then being lowered again in 2003 to 15%. At the same time as they are having these huge tax cuts, they also enjoy the fact that there is a cap on what amounts people pay into Social Security. That cap has increased gradually since the inception of Social Security and is now set at $90,000. So wage earners pay 6.2% of their earnings into Social Security, which is matched by their employers, up to $90,000. Once earnings exceed $90,000, no more money is withheld for Social Security. Since the top income households are far above that cap, they automatically enjoy a 6.2% savings on their taxes from Social Security which is not withheld, but even that huge savings is inconsequential in comparison to their other earnings and other tax savings. The Economic Policy Institute reports that “eliminating the Social Security Cap, would virtually eliminate the projected 75-year funding shortfall.”

http://www.epinet.org/content.cfm/webfeatures_snapshots_20050217

According to the IRS,

Those earning $29,019 to $57,343 (or between the median 50% to top 25% of wage earners), pay 12.66% of total income tax revenues.

Those earning $57,343 to $94,890 (adjusted gross income thresholds on percentile of personal income tax, not including corporate taxes) are in the top 25% of wage earners paying 18.04% of total income tax revenues,

$94,891 - $130,080 in the top 10% of wage earners paying 11.48% of total income tax revenues,

and those earning $130,080 to 295,495 are in the top 5% of wage earners paying 20.09% of total income tax revenues.

So, even based on a definition of middle-class income as $40,000 - $90,000, you’re looking at around 20% of total income tax revenues collected. But if you are looking at a range of $30,000 to $130,000 as middle class income, then they are paying about 41.5% of the total personal income tax collected.

The top 1% includes those earning $295,495 or more and they do pay 34.27% of total tax revenues, but that also includes the super rich who’ve seen the largest increases in income of any group by 560 TIMES the median income of $42,700 over thirty years. It hardly seems fair that that group would be paying only 34.27% of all personal income taxes when they are now earning as much as the bottom third of all Americans, especially when the bottom 90% of Americans haven’t seen much of an increase in income at all over three decades. Keep in mind also, that income taxes for the rich don’t reflect their actual incomes. When you report income as a wage earner, every dime you earn is taxed because it is reported on your W-2. As a super rich investor, the income is hidden in corporations that are held in other corporations that are owned by the investor, but not reported to the IRS, so taxes aren’t paid on the majority of the income. More than half of the income for the top 1% is investment income, so it isn’t taxed as simple income, and much of their taxable compensation is deferred to be paid out over a period of years in small amounts so that they can qualify for lower tax rates. Their real tax rates are much less than the 34.27% rate.

This is laughable. In 2003 the bottom 50% of income earners paid 3.46% of all federal income taxes (including AMT, Les). Over half of this group paid nothing at all (and many probably got something back as well). The average tax rate for the bottom 50% was 2.95%.

I agree that the AMT needs to be revised to reflect its original intent and we need to close the loopholes, but to say that the tax system unfairly targets the poor is ridiculous.

The reasons were identical. To spur economic growth.

Taxes are the cost of our living in a free society and an investment in the future of our country and its citizens. We still have to pay for the cost of the transportation systems, the water supplies, the educational systems, health care systems and the food safety systems as well as our national guard and military for national defense. The issue isn’t so much a matter of how much each of us pays as much as it is whether the cost is fairly distributed and competently and efficiently managed.

In the United States we are currently graduating only about 50,000 engineers every year. Yet India and Communist China are graduating 500,000 engineers every year. How can we compete in a global economy without an educated population? And how do you think that poor countries can educate so many students when we can’t (or won’t) educate even a fraction of that?

Milwaukee used to be known as a city where you could manufacture anything because we had so many manufacturing facilities, foundries, and independent tool and die makers. Now everything is manufactured in Communist China. We won World War II because of our ability to manufacture the tools and supplies needed to win the war, faster than the enemy. Now we import everything. If we were looking at another World War, we wouldn’t be in any kind of position to keep up with the needs of our troops. We don’t have the ability to do so now in a guerilla war with a third world country. We can’t manufacture enough bullets to fight this war in Iraq and have to import them. We can’t make armor fast enough to protect out troops, and we can’t build enough housing to put our own people in after a disaster like Katrina. Most of our clothing is made in South Korea and Malaysia. Most of our computers are built in China. Most of the counterfeit goods being brought into this country are coming from China, and many of the counterfeit bolts and fasteners which need to pass expensive and stringent testing if they are legitimately manufactured here in the United States are coming from China and many of those counterfeit bolts and fasteners have been found to be the cause of plane crashes, helicopter crashes and other major engineering failures.

And recently the Bush administration outsourced the production of all of our “smart magnets” that provide the brains for our “smart bombs”. And of all places, the production was outsourced to Communist China.

Once that money goes out of this country it takes a long time to come back, instead of that money going to workers here, and paying taxes here, and building businesses here.

Back in the days of John F. Kennedy 45 years ago, the distribution of the costs were much more equitable, and the reduction of the percentage of tax could affect more people across the board more fairly, because wages were closer to executive pay then, and a higher percentage of people and companies were paying taxes. Today, we have a tax system which unfairly targets the poor and the middle class while leaving the ultra rich and large corporations largely untaxed. The poor and the middle class are getting squeezed to pay for something that they don’t have the money to pay for, while the ultra rich are being given exemptions so that they don’t have to pay anything at all.

In 20 years, we’ve seen average Americans increase their income by about twice what it was 20 years ago. That’s an increase of about 5% a year, or roughly an increase of just the cost of living. That means that the average American is really earning about what they earned 20 years ago. At the same time, their taxes have increased over those years because corporations and the super rich are getting out of paying their share.

On the other hand, the super rich have increased their incomes by 1000 times or more while paying taxes at a rate less than that of a lower middle class worker. When you see a CEO or top executive getting compensation which is more than all the rest of the workers in the company combined, even when the company has gone bankrupt during his inept leadership, and at the same time getting deferred compensation where the taxes are paid at a much lower rate and the cost of the deferral borne by the corporation, (and in turn paid for by the stockholders and workers) there is obviously a serious problem there. People who have spent their lives working for that company are left destitute and without hope for alternative employment. But the person or persons responsible for their destitution have their golden parachutes and hundreds of millions and even billions of dollars that they’ve stolen with the approval of the boards of directors, and the accounting firms that covered it up. Unfortunately, we’ve seen that happen more and more often, and with that, more and more people who are earning less and less (or not finding replacement jobs at all) are being stuck with the bulk of the taxes which are not being collected fast enough to pay off our huge federal debts and so continue to accrue with high interest.

In the State of Wisconsin, in the past 18 years, 16 of which were under a Republican Governor, and much of which was under a Republican controlled Assembly and State Senate, we’ve seen most corporations get sweet heart deals so that they were not only given preferential tax status, but which out of necessity because of those deals, shifted the tax burden to the property taxes owed by individuals. And where are those corporations now? Many of them have closed up shop and gone overseas and taken the jobs with them.

It has been estimated by Thomas Piketty and Emmanuel Saez, both French economists, who wrote a paper that the National Bureau of Economic Research published in 2002, from data collected from the National Income and Products Accounts, the most comprehensive economic data the government collects and on tax data, that by 2002 American Corporations are paying less than 10% of the total taxes collected by the Federal Government versus almost 1/3rd of all revenues during the Eisenhower administration. Many “American” Corporations have off-shored their headquarters so that they don’t have to pay U.S. taxes. So much for doing their patriotic duty and paying their fair share of the cost of national security.

The Alternative Minimum Tax was originated in 1969 to catch ultra rich tax cheats, about 155 families who made their money through investments and not through earned income. Those tax cheats had loopholes and corporate shields to hide their investments and get away with not paying any taxes because they don’t report all of their income, while average workers pay taxes on every penny they earn because it is all reported. But the Alternative Minimum Tax has gradually been changed over the years by our Congress, to include more and more middle class Americans among those required to pay the tax, while creating even bigger loopholes for the ultra rich. And while Bush claimed that he created tax refunds for all Americans, the truth was that he pulled the con job of the century. What he gave back to you in your taxes, he took away and then some, with reduced deductions built into the Alternative Minimum Tax which caused average Americans to pay even more in taxes than they had been paying, while giving tax relief only to the top 1% of America’s wealthiest. The Alternative Minimum Tax these days is more accurately referred to as the Stealth Tax because it sneaks up on you. Most people are unlikely to be aware of the Alternative Minimum Tax because most taxes are calculated on computers with the calculations being done in the background. The software compares the difference between income and deductions under both the regular system and the alternative system and the taxpayer pays for whichever is higher. The tax cuts you heard so much about were applied to the regular system, but the tax you actually pay is based on the higher Alternative Minimum Tax. Unless you do the calculations yourself, or look at line 42 of Form 1040, the additional levy just appears to be wrapped into the overall tax bill.

According to Jerry Tempalski, a career staff economist with Treasury’s Office of Tax Analysis did a study based on the Department of the Treasury’s own computer model, and showed that:

“In 2004 64% of taxpayers who make $200,000 to $500,000 will be subject to the stealth tax instead of the 36% who would have been affected before the Bush tax “cuts”.

In 2004 about 5.6 million families will pay the alternative tax. The next year the number affected will more than double to 13.4 million families.

By 2010 there will be 17.2 million additional taxpayers forced onto the alternative minimum tax because of the Bush tax “cuts”.

About 10 million of these will be households making $100,000 to $200,000.

In that income category about 85 percent of all households will be forced onto the alternative minimum tax.

By 2010 about 8.6 million households will be denied their entire Bush tax cuts because of the alternative minimum tax.

Alternative tax payments will triple from $32.4 Billion in 2001 to $96 Billion in 2010, making it ever more costly to fix.”

“Perfectly Legal” David Cay Johnston Page 113

That doesn’t even take into account the fact that the cost of living is going up. Seen your grocery bill lately? Seen the cost of housing lately? Seen health care costs lately? Seen the cost of heating your home and gas for your car lately?

Back when Clinton was in office and gas was at about $1.60 a gallon, Congressman F. James Sensenbrenner derided President Clinton for doing nothing but “going to the Saudis with a tin cup begging for lower gas prices.” Funny, but now that our gas prices have been hovering over $2.00 and even over $3.00 or more, you haven’t seen Sensenbrenner demanding President Bush do more to lower our gas prices.

And where will all of those prices be when it comes to paying for the massive federal deficits? But what do Bush and the Republican Congress care? By the time it comes to actually pay for all of the debts they’ve saddled us with, they’ll be long gone, and those with a short memory will have long forgotten how we got into this mess in the first place.

If you want to talk about taxes, stop talking about percentage rates, and start talking about making everyone pay their fair share. Get rid of the corporate loopholes and off-shoring of corporate headquarters. Reform the Alternative Minimum Tax so that it is directed at the ultra rich tax cheats the way it was intended, rather than going after middle class families. Keep the estate tax (since most of the income covered by that tax was never taxed in the first place, because most of that is from investments and not earned income), and since the elimination of those taxes only benefit the ultra rich, like George W. Bush, who stands to inherit much of his daddy’s Billion$ tax free.

Just remember that if only the poor and middle class are paying the taxes, there won’t be any money to pay for Bush’s wars or much of anything else for that matter. But Republicans want you to think that the economy is great, even though auto manufacturers are selling their cars at employee discount just to sell them, and car parts manufacturers like Delphi are filing for bankruptcy. GM just laid off another 30,000 workers.

Milwaukee has 50% unemployment among minorities and 59% unemployment among minority males. For the 22nd largest city in the country that’s saying a lot for Bush’s economic “recovery”. (Milwaukee was the 17th largest city in 1990, and the 19th largest in 2000. I guess that lack of jobs probably had a lot to do with the population drop.)

And if you really want to see how we’ve been getting screwed by our Government with unfair taxes (by both political parties, but primarily by the Republicans, and most notably by George W. Bush), pick up the book “Perfectly Legal” by Pulitzer Prize winner David Cay Johnston who has done exhaustive research on the subject.