Machine Design, Editorial Comment
March 1, 2001
The answer in a moment, but first let's consider the way income emerged as an issue in the last presidential election.During the campaign, both candidates talked about reducing income taxes. But there was disagreement about where the line should be drawn when it came to giving citizens relief. One side thought we should keep on soaking the rich, while the other side said that tax relief should be across the board.
The word "fair" was used a lot in the debate, but nobody knows what the word means. The definition depends on the type of voter a politician is talking to. What seems clear is that one side of the debate was framed by the politics of envy.About half the country believes the rich should be taxed heavily as a form of punishment for having so much money. Say what you will about free enterprise in the United States, a large part of the population envies and despises people who have high incomes.A group mentioned frequently as worthy of special contempt are people earning the top 1% of income. This group often played a prominent role in campaign oratory, being portrayed mostly as selfish, privileged individuals unworthy of any tax relief. Populist thinking is that people earning this much money clearly don't deserve their good fortune, so the government is entitled to put the screws to them.
At this point, we'll turn to what you have been waiting for, namely, an answer to the question posed at the beginning of this column. To be hated and envied by a substantial portion of our nation -- in short, to be in the top 1% of income -- you have to earn an adjusted gross income of $269,500. At least that constituted the top 1% in 1998, the latest year for which figures are available.
Portrayed as being almost as unworthy as the top 1% is the top 5%. People in this group are held in only slightly less contempt than the top 1%. And to be in the top 5%, you had to earn $114,700.
For good measure we will look at the top 10%. If you are exceptionally envious and resentful, it is quite easy to hate the entire top 10%. To be included in this expanded circle of ill will, a person had to earn $83,200.
But let's get back to that particularly loathsome top 1%. Collectively, they earned 18.5% of the nation's income. So how much of the tax burden should they have carried? Well, if we were "fair" about it (still an undefined term), they would have paid 18.5% of the income taxes. Actually, they paid almost twice that, accounting for 34.8% of federal income-tax revenue in 1998.
But wait! It gets better -- or worse depending on your point of view. The top 5% paid 53.8% of all income taxes. In case you aren't good with numbers, that means that a veritable handful of taxpayers carried more than half the tax burden. And the top 10%? They earned 43.8% of all income and carried 65% of the taxes.
In my mind, the tax situation is way out of kilter. What we need is a flat tax with no deductions, where everyone pays the same percentage of income. This would simplify returns, put thousands of tax lawyers out of business, and allow a cut in the tax rate to something on the order of 15%. These also happen to be reasons we'll never see the flat tax enacted into law.
-- Ronald Khol, Editor