316 PART FouR • PolicymAking
smaller estates. Sales taxes are regressive, because the wealthy spend a relatively smaller por-
tion of their income on items subject to the sales tax. Add everything up, and the tax system
as a whole is slightly progressive. Should the system be more progressive, as President Obama
has advocated? We discuss that issue in this chapter’s At Issue feature above.at issue
The rich have gotten richer during the last few
decades—of that we are certain. In 1980, the top
1 percent of income earners made 9.3 percent of the
nation’s total income. Thirty years later, the top 1 per-
cent of income earners made more than 20 percent of
the nation’s income.WhY ShOuLDn’T
The RiCh PaY MORe TaxeS?
Not only have the rich increased their share of the
nation’s income, they also have become wealthier. We
are increasingly becoming a society divided by class.
In the past ten years, the hourly pay of average work-
ers, corrected for inflation, has not risen at all. During
the same decade, the number of millionaires and bil-
lionaires skyrocketed.
In this context, it seems appropriate to raise taxes
on the rich. After all, they are now paying much lower
marginal tax rates than during much of the postwar
history of the United States. There have been periods
when marginal federal income tax rates on the very
rich exceeded 90 percent. Today, the rate is 39.6 per-
cent. In addition, the tax on capital gains, which make
up a much larger share of the income of the rich than
of other people, is only 15 percent (23.8 percent in the
top tax bracket). Finally, state and local taxes favor the
top 1 percent. They pay 8.4 percent of their income to
state and local governments, as opposed to 12.4 per-
cent of income paid by those in the bottom 20 percent.
Those who have benefited the most from America’s
economic system should pay more, particularly when
the federal budget deficit is a major concern. Certainly,
President Obama believes that the rich ought to do
more. Of the tax increases in his 2013 proposed budget
(which has no chance of being adopted), 86 percent
would be borne by people making more than $200,000
per year. The rich argue that they are the “engines of
economic growth” and should be encouraged to con-
tinue their hard work. Higher taxes, however, are not
going to keep the wealthy from striving.DOn’T KiLL The GeeSe
ThaT LaY The GOLDen eGGS
It is true that the top 1 percent of income earners now
receive more of the national income than they did
thirty years ago. Yet in those thirty years, the share of
total income taxes paid by the top 1 percent of income
earners increased from 18.3 percent to 38 percent.
The top 1 percent of income-earning U.S. residents pay
more than one-third of all federal income taxes in the
United States.
The top-earning 5 percent of taxpayers pay more
than the bottom 95 percent—58.7 percent of federal
income taxes. The top 50 percent of earners account
for 97.3 percent of all income tax paid. The number
of those who pay nothing to support the federal gov-
ernment through the income tax continues to rise
(although this lower-income group does pay Social
Security and Medicare taxes).
An increasingly large number of Americans actu-
ally receive more through the federal income tax than
they pay. As part of the Earned Income Tax Program,
25 million families and individuals with incomes of up
to $48,000 receive payments that substantially reduce
their Social Security and Medicare taxes.
If we use taxes to “soak the rich,” we will tax the
most productive individuals in the country. High mar-
ginal tax rates discourage effort. The higher the rate,
the greater the discouragement, and this will reduce
the rate of economic growth. More income will be
redistributed, but is that the ultimate goal of our soci-
ety? Indeed, Republicans in Congress believe that tax
rates on top earners should go down, not up.FOR CRiTiCaL anaLYSiS
Is it possible that higher taxes—and a lower after-tax income—
could actually make some people work more?ShOuLD The RiCh PaY even MORe in TaxeS?
Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.