According to Forbes magazine, “The number of billionaires on Forbes’ 35th annual list of the world’s wealthiest exploded to an unprecedented 2,755—660 more than a year ago. Of those, a record-high 493 were new to the list—roughly one every 17 hours, including 210 from China and Hong Kong. Another 250 who’d fallen off in the past came roaring back. A staggering 86% are richer than a year ago.”
The United States has the most billionaires, with 724, including the richest man in the world, Elon Musk, the founder and CEO of Tesla and SpaceX, who first appeared on the Forbes billionaires list in 2012.
Democrats in Congress have a problem with billionaires in general and Elon Musk in particular: the rich don’t pay their fair share of taxes, they say. To remedy this, Senator Ron Wyden (D-Ore.) last year proposed a Billionaires Income Tax. According to a summary of the plan:
The Billionaires Income Tax would apply to roughly 700 taxpayers and raise hundreds of billions of dollars, ensuring the wealthiest people in the country pay their fair share toward historic investments in childcare, paid leave, and addressing the climate crisis. Only taxpayers with more than $100 million in annual income or more than $1 billion in assets for three consecutive years would be covered by the proposal.
“There are two tax codes in America. The first is mandatory for workers who pay taxes out of every paycheck. The second is voluntary for billionaires who defer paying taxes for years, if not indefinitely,” said Wyden.
Musk, who paid $68,000 in income taxes in 2015, $65,000 in 2017, and nothing in 2018, criticized the tax proposal, “saying it represented the start of a new campaign from Democrats to redistribute wealth from the richest Americans.”
Although Time magazine named Musk its Person of the Year for 2021, Senator Elizabeth Warren (D-Mass.) was not celebrating. She tweeted: “Let’s change the rigged tax code so The Person of the Year will actually pay taxes and stop freeloading off everyone else.” She then took out Facebook ads accusing Musk of being a “freeloading billionaire” and demanding that a wealth tax be imposed on him.
Just before Christmas, Musk announced that he will “pay over $11 billion in taxes this year.” This was after he had previously said that he would pay “more taxes than any American in history.”
But even paying $11 billion in taxes is not good enough for some Democrats in Congress. Representative Pramila Jayapal (D-Wash.) argued that Musk was still failing to fork over his “fair share.”
This shows that the rich paying their “fair share” is just a political construct. As Scott Hodge of the Tax Foundation explains: “There is no objective standard for what defines ‘fair share’; it is a purely subjective concept. But there are facts, which are objective, and the facts suggest that the U.S. tax and fiscal system is very progressive and very redistributive.”
According to the latest figures released by the Internal Revenue Service (IRS), as reported by the Tax Foundation:
In 2018, the bottom 50 percent of taxpayers (those with AGI below $43,614) earned 11.6 percent of total AGI. This group of taxpayers paid $45.1 billion in taxes, or roughly 3 percent of all federal individual income taxes in 2018.
In contrast, the top 1 percent of all taxpayers (taxpayers with AGI of $540,009 and above) earned 20.9 percent of all AGI in 2018 and paid 40.1 percent of all federal income taxes.
In 2018, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid roughly $615 billion, or 40.1 percent of all income taxes, while the bottom 90 percent paid about $440 billion, or 28.6 percent of all income taxes.
And as Hodge adds:
Similarly, in 2018, the top 0.1 percent of taxpayers paid $311 billion in income taxes. That amounted to 20 percent of all income taxes paid, the highest level since 2001, as far back as the IRS data allows us to measure. The top 0.1 percent of taxpayers in 2018 paid a greater share of the income tax burden than the bottom 75 percent of taxpayers combined.
How progressive and redistributive is the U.S. tax code?
Hodge points out that IRS data not only “indicates that the wealthy in America are bearing the heaviest share of the income tax burden than in any time in recent memory,” but that “more than 53 million low- and middle-income taxpayers pay no income taxes after benefiting from record amounts of tax credits, and six out of 10 households receive more in direct government benefits than they pay in all federal taxes.”
So not only are “the rich” punished by higher rates and the phase-out of tax exemptions, deductions, and credits as their income rises, “the poor” pay little or no income taxes but receive tax refunds of money never withheld from their paychecks in the form of refundable tax credits.
A study by the Organisation for Economic Co-operation and Development (OECD) found that the United States had the most progressive tax system of any industrialized country:
The top 10 percent of U.S. taxpayers paid a larger share of the tax burden than their counterparts in other countries and our poorest taxpayers had the lowest income tax burden compared to poor taxpayers in other countries due to refundable tax credits such as the Earned Income Tax Credit and the Child Tax Credit.
The solution to this injustice is not to make the tax code simpler or flatter. And neither is it to make “the poor” pay their “fair share.” The solution is to limit government spending to only that which is authorized by the Constitution and eliminate the need for the income tax in the first place.
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