Saturday, September 24, 2011

Who's Payin' Taxes Up There?

I have been seeing the figure 100,000 for the number of millionaires who don't pay any federal taxes. This sounded incredible to me, so I followed the link which led...nowhere.

The proof was supposed to be at The Center for American Progress, but the best that I could find there was the figure 1,470 in 2009.

Derek Thompson at The Atlantic gives a figure of 7,000 for 2011. But he explains that there are good reasons (and some bad ones-- tax tricks, he calls them) why this can be so. Taxable income, even a million dollars of it, can be reduced to zero because of write-offs from a terrible tragedy, for example a home or business is wiped out by a natural disaster, or someone in the family comes down with a hugely expensive form of cancer. People can put lots of money into tax deferred investments. There's nothing wrong with that. Oh, and then there are those tax deductible charitable donations that liberals seem to hate. If you give most of your money to the Salvation Army or to Feed the Children, do you become an enemy of the people?

Megan McArdle, also writing for The Atlantic, gives much more detail on the complexity of the millionaire tax situation. But consider this:

You cannot build a tax code on the principle that no millionaire, ever, should ever have an effective tax rate lower than their secretary.  The tax code covers 300 million people.  Rules written to cover that many people, in a complex economy where there are lots of different ways to make money, and some uncertainty as to what constitutes income, will not produce the same result that we would get if the economy were the size of a kindergarten class, and we had an omnipotent teacher charged with making the income distribution perfectly fair. ...

The only way to actually ensure that no millionaire, anywhere, pays less than 20% on their annual income would be to essentially suspend the rule of law for wealthy people, and give the IRS power to seize income from rich people at will within some very broad guideline about fair shares.  This strikes me (she said, with dramatic understatement) as a very bad idea.

But when it's so easy to demagogue the question into a larger ideological victory, what do individuals and the particulars of justice matter?

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