Friday, March 1, 2013

U.S. income tax facts

This graphic appeared in the Wall Street Journal:

(Original located here.)

Several items in the graphic caught my attention. First, the effective tax rate that people pay (i.e., the amount of their AGI - adjusted gross income paid in federal income tax) diminishes for top earners. From the biblical perspective of caring for the most vulnerable, this makes no sense. Indeed, the chart of effective tax rate shows how the very wealthy have used their power to shape the tax code for their benefit.
Second, over a third of individual filers have some investment income (taxable interest, ordinary dividends, and capital gains). Investment income indicates savings, whether in an interest bearing bank account, stock or bond mutual fund, or other security. These numbers do not include people whose savings are entirely in tax exempt or tax deferred vehicles such as IRAs or municipal bonds. Individual savings provide an important source of investment funds that keep an economy growing.
Third, more people had gambling income than had income from farming. Gambling is not an attractive income opportunity: gambling losses were almost nine times the earnings from gambling. Relying on revenues from state operated gambling operations (lotteries, for example) provides no assurance of fairly sharing the fiscal responsibility for funding government.
Finally, the average effective tax rate for all filers was 11.8%. That number gives the truth to the false claim that tax rates in the U.S. are too high. As news reports about sequestration's effects repeatedly underscore, substantially reductions in federal government expenditures will require cutting services that most Americans value. The alternative, a very reasonable alternative, is to raise taxes. Simplifying the tax code to ensure filers pay a progressively greater percentage based on income is one approach, probably the fairest. The other approach is to increase tax rates.
What thoughts does the Wall Street Journal prompt for you?

No comments: