"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said as he announced his deficit-reduction plan this week. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office....
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. But that's less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes.
Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.
The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.
Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.
The country can have a reasonable debate about whether the very wealthy should pay even more in taxes than they do. The country can have a related reasonable debate over the capital gains tax rate, various tax breaks that both reduce tax revenue and create market distortions.* But we can’t have a reasonable debate in which one side says, falsely, that, on average, millionaires pay less in tax, or at a lower tax rate, than middle-class workers.
This reminds me of the debate over the merits of raising the minimum wage back in the mid-90s. Economists David Card and Alan Krueger (the same Alan Krueger who is now tapped to head the Council of Economic Advisors) conducted a study of the effect on employment of raising the minimum wage in New Jersey, and concluded that the higher minimum wage actually increased employment. Now, one could imagine that the effect on employment was essentially zero, or, more likely, that a small decrease in employment occurred but other factors that the authors couldn’t control for more than offset the decrease, but it’s not possible to have a serious conversation about the minimum wage if one side insists that demand curves for labor slope upward.
If, indeed, Warren Buffett - reportedly worth many billions of dollars - is paying a lower average tax rate than his secretary, shame on us. However, if he understands that this is a bad situation for the country and continues to do so while lobbying to have the rule changed, shame on him.
* For example, mortgage interest deduction, which benefits the middle class (as the poor tend not to own houses and the very rich tend not to have mortgages), encourages home ownership at the expense of the rental market. While home ownership has its benefits, it has costs as well, including increasing the costs of moving.