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?