Update: FWIW, I don’t care at all which direction things go. I’m not rich but I’m not poor. I pay about $35k/year in taxes and would love to pay $13.3k, but that will never happen. I just can’t stand the weird math people do.
First of all, I pretty much couldn’t care less about this issue but I think people don’t understand the math, so I feel obligated to explain. The only reason I’m talking about this at all is because Adam Carolla talks about this quite a bit on his podcast and the bad math was frustrating me. All these numbers are made up and extreme on purpose in order to illustrate the point.
Let me explain the current situation. You often hear that the rich are not paying their fair share of taxes. What they are referring to is someone making $1 million/year may have an effective tax rate of 12% (pay $120k/year in taxes) while someone who makes $30k year may have an effective tax rate of 34% (pay $10.2k/year in taxes). They say that the person making $1 million/year needs to have an effective tax rate of 34% (pay $340k/year in taxes) in order to pay their “fair share".
OK, now, let us agree on a different but related situation. Say five people of varying income levels go out to lunch and all order the exact same thing. The bill for all five comes out to $55. I think everybody can agree that in order for each person to pay their fair share, each person would have to pay $55 / 5 = $11. Everybody with me?
Let us expand this example to the US. The bill to run the US (roads, fire and police departments, jails, etc) may be $2 trillion/year. There are roughly 300 million people in the US, however, only some of them (exclude children, the elderly, disabled, etc) are in the position to pay the bill, let’s call it 150 million people. So if everybody is to pay their fair share, they would have to pay $2 trillion / 150 million, or $13.3k/year in taxes. Still with me?
If everybody’s fair share was $13.3k/year, that would result in an effective tax rate of 44% for the person making $30k/year and an effective tax rate of 0.0013% for the person making $1 million/year. Using these assumptions, the person making $1 million/year and paying $120k/year in taxes is paying WAY more than their fair share of $13.3k. Have I lost anyone?
I think it is pretty clear that the person making $30k/year can’t afford to pay $13.3k/year in taxes and the person making $1 million/year can afford to pay way more.
They should say it how it is, they want the rich to pay more than their fair share so most people can pay less than their fair share. Own up to it. Saying the rich aren’t paying their fair share is good at riling people up but isn’t accurate.
OK, now I can go back to not giving a shit about this particular topic. Cheers.
Update/aside: Let’s apply the % of income fair share model to paying for lunch. Some would pay $20 while others paid $6, all because their incomes are different. That is kind of bizarre.
Update: Some would say that the rich and the non-rich use different amounts of the government. I would assume the rich use less, but let’s assume they use more. Do they use 10x more?