The Tax the Rich Rhetoric Needs to Focus on the Realities of the Situation

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by Larry K. Greenwalt, CPA | Chairman of the Board

It seems to be fashionable in Washington to say that the wealthy are not paying their fair share of income taxes. What is fair? Let’s take a look at that. In an interview with NPR, Mr. Roberton Williams, Senior Fellow, Tax Policy Center, noted that in 2009, 47% of Americans did not pay any Federal income tax, up from 38% in 2007. The makeup of this group was primarily families with children, the elderly, low income households, and those who have too little income on which to pay taxes after deductions, credits and exemptions from income tax. This increase in the percentage not paying tax was largely the result of the stimulus bills that were put in place to try to get the economy going again.

People with incomes over $500,000 represent about 1% of all Americans, and they pay about 24% of the income taxes. The top 20% of all taxpayers make a little above $100,000 per year, and pay about 70% of all of the income taxes. Let me emphasize again – the top 20% of taxpayers pay about 70% of the income taxes being paid!

So, to say that the “wealthy” are not paying their fair share is not accurate. And to say that raising the income taxes on the “wealthy” will help the country reduce our large deficits, is not realistic. That would require raising taxes substantially on middle class taxpayers, with the resulting likely impact of stalling what little recovery and increase in confidence does exist. Should/could the income tax rate be raised on those with incomes over a certain amount – say $500,000 to $750,000 in income per year? Possibly. But don’t expect doing that to solve our deficit problem.

Let’s also recognize that it isn’t government spending that grows our economy thereby increasing our collection of tax revenue – it is the creation of small businesses and entrepreneurs who are willing to take a risk to do something more that grows employment and the economy. But this will only happen if there is adequate reward (read no punitive taxes) and a reasonable amount of certainty from our national leaders (consider the uncertainty created by the threat of oppressive government imposed health care, burdensome regulations and more bureaucratic red tape). Until we insist on quieting the rhetoric so that everyone can focus on the real solutions that are needed, we will make little progress – in fact great damage may be done.

We surely have learned by now that bigger government spending to solve our problems is not working. It is time to explore other sensible solutions. We need calmer minds to focus on the issues and the appropriate solutions. We need our representatives to truly act in the best interest of America. We need a new plan that takes a long view of where we need to go, and how we can get there. That’s why this election is so important – but there is an awful amount of smoke. So we will have to be engaged like we have never been before. That’s my opinion, what’s yours?