Do the rich really pay their fair share in taxes?

No. But don't they pay 40% of the income taxes, haven't you read it in the organ of the right, I mean, the Wall Street Journal. Yes, I have. But even after paying 40% of the income tax, the rich arn't pulling their fair share. Allow me to explain...

In 2005, the bottom 53% of taxpayers paid 9.3% of all income taxes, while the top 0.91% of taxpayers, who paid the top marginal tax rate of 35%, paid 32.4% of all income taxes. The top marginal rate by itself generated more then twice as much revenue as any other marginal rate (Bryan & Mudry, 2006). Not all taxes, however, are as progressive as the federal income tax. When state, local and other taxes are included the top 1% paid roughly 21% of all taxes (Miller, 2007). Overall, the share of income garnered by the top 1% is decreased from 20% before taxes to 14% after taxes (Aron-Dine & Sherman, 2007).[1]

These numbers need to be read with care, however. They do not indicate that the rich are taxed sufficiently. For a household in the top 0.1% with an income of $1.6 million to feel the pinch of taxation as hard as someone making $35,000, it will need to be taxed at a considerably higher rate - thus inevitably shouldering a greater share of the tax burden. Furthermore, the poor in the U.S. pay virtually no income tax, while the working and middle classes are taxed lightly (See Alperovitz, 2004). Suppose a society with high inequality, such as the U.S., decided not to tax anyone but those making at least $1 million per year. Now suppose the rate at which the rich are taxed is 1%. True, the rich in this fictional society are paying 100% of all income tax. Yet, as their seven-figure incomes are being taxes at just 1%, the injustices and inefficiencies outlined in section two will not be alleviated. The rich in the U.S. pay a larger share of the tax income tax burden because they enjoy much higher incomes than the bottom 99% and the working and middle classes are taxed very low rates. As I described in section two, the top 1% are still pulling ahead of the bottom 99% even in terms of after-tax income (see figure 2) and the Bush tax cuts resulted in an inefficient allocation of resources by lower the tax burden levied on the rich. The one thing one may infer from these statistics is that even in the U.S., the welfare state is financed at least partially through progressive taxation, i.e. the poor are being lifted out of poverty with resources coming from high income households. In sum, the welfare state does reduce inequality and thus the injustice and inefficiency that accompany inequality.

[1] it should be noted that 14% is still almost twice as large as the 7.5% of net income as the top 1% received in 1979.

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