NCPA - National Center for Policy Analysis

Understanding Tax Fairness

April 25, 2012

President Obama has called for the implementation of the Buffett Rule (a higher tax rate on the rich) because he says that the current tax system unfairly favors the wealthy.  To support this point, he has emphasized the low tax rates paid by American millionaires and those few cases in which millionaires pay no taxes, says Alex Brill of the American Enterprise Institute.

However, this degradation of the wealthy as tax evaders and unwilling to pay their fair share is misleading the voting public.  There are numerous injustices present in the tax system that manifest themselves in much larger problems than a handful of millionaires.

  • President Obama took to Twitter recently to decry the fact that 1,470 millionaires paid no federal income tax in 2009.
  • Yet the president's argument ignores the fact that 5.1 million households with incomes ranging from $40,000 to $100,000 also paid no income taxes in 2009.
  • For the 35.8 million other people in the same income range who paid, on average, thousands of dollars in federal income taxes, this is also a significant matter of fairness.

This growing group of non-paying filers is a long-term trend for the American tax structure, and it suggests that the largest problem with our taxes is not that the rich do not face higher rates.

  • While the number of tax returns filed jumped from 107 million in 1987 to 140.5 million in 2009, the number of taxable returns actually fell from 87 million to 82 million.
  • Of the 10.8 million taxpayers with adjustable gross incomes (AGIs) between $40,000 and $50,000, 22 percent paid no federal income tax in 2009, while those who did have tax liability paid an average of $3,000.
  • Of the 18.7 million taxpayers with AGIs between $50,000 and $75,000, 12 percent paid no federal income tax.  Among the remaining 16.4 million returns in this income bracket, the average tax bill was about $4,700.

If the president were truly dedicated to tax fairness, he would lead a charge to do away with the tax expenditures that make all of this avoidance possible.

Source: Alex Brill, "Understanding Tax Fairness (and Why the Buffett Rule Is a Distraction)," The American, April 17, 2012.

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