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The gap is not just income

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Thursday, Oct. 31, 2013, 12:01 a.m.
 

Will it do any good? Probably not.

People convinced that America's problem is the “income gap” — rich and poor floating ever farther apart on the economic tides — aren't going to change their minds.

Research is out demonstrating, as if it's not well known, that high earners pay high taxes. Maybe more than their “fair share,” however you define it.

This while the poor pay no income taxes. Zero. Less than zero; the government pays them, via Earned Income Tax credit.

No matter. If you believe that wealth ought to be spread around more, with the income tax being the ladle of choice; that people in mansions can “afford” to take less so folks at the bottom can have more — as if it would work out that way — you are going to favor soak-the-rich as public policy.

Nevertheless, a report titled “Putting a Face on America's Tax Returns” might at least explode one myth: that the wealthy somehow “get away” with it. They economize through every loophole while Ordinary Joes cough up every cent.

But a report from the Tax Foundation, a Washington-based tracer of the public's lost money, says the top 10 percent of taxpayers pay more than 70 percent of all income taxes. In 1985 they paid 55 percent. Their contribution keeps growing while the share of the other 90 percent has skidded by a third.

About half of Americans earn less than $100,000; half earn more. The lower half pays 18 percent of all income taxes; the higher, over 80 percent.

After all of our tax season figuring — and don't we all spend 7 billion man-hours and $165 billion a year complying with a tax code that grows ever more complex? — the all-American average income tax rate is about 10.4 percent. For earners of $200,000 a year or more it's almost double that.

If you earn less than $30,000, about half of all filers, your effective income tax rate is actually negative, thanks to refundable credits. True, it might not feel like that. You have hefty payroll taxes deducted to fund Social Security and Medicare.

But the income tax “freedom” of the poor and the poorly-earning is a huge point of criticism of the welfare state. It means that millions receive benefits but pay none of the taxes to support them. The natural political result: let the entitlements roll! Hello, $17 trillion national debt.

What's the takeaway point from all this? That the federal income tax, though far from keeping up in the race with federal spending, is highly “progressive,” based on ability to pay.

The Robin Hood way of taxing from the rich to give to the poor obviously is not narrowing the gap. Income-levelers may go radical one of these days, proposing wage controls on the highest-paid corporate and Wall Street brass.

There are better ways to fight the income gap, if fight it we must. The rich, it should be kept in mind, do the lion's share of society's spending, investing, job-creating and donating. Why not do a better job helping young people join them, rather than fight them? By doing the saving that leads to capital formation. And learning the skills to qualify for high-paid careers. Don't let the income gap be an ambition gap, a smarts gap.

Jack Markowitz is Trib Total Media's Thursday columnist. Reach him at jmarkowitz@tribweb.com.

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