A U.S. Tax System Tutorial, and Who Really Pays?
The market-oriented Manhattan Institute has a very informative tutorial about the U.S. income tax system. Written by Stephen Moore, senior economics writer at the Wall Street Journal and author of the forthcoming book, "Who's the fairest of them all?, Moore supplements the tutorial with many helpful charts.
He begins with a 1963 quote by President John Kennedy, and continues from there:
“It is a paradoxical truth that tax rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates…. [A]n economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or enough profits.” —John F. Kennedy, 1963 (italics in the original)
"Even if most policymakers and members of the public instinctively understand the wisdom of President Kennedy’s words, tax rates are set to go way up, not down, next year because of the scheduled expiration of the Bush tax cuts at the beginning of 2013. The Obamacare law also raises tax rates on wealthy individuals by an additional 3.8 percentage points next year. President Obama and others in Congress argue that these higher tax rates are justified because of the growing consensus that the rich don’t pay their fair share of taxes. Unless we do something to spread the burden more equitably, the argument goes, American society will become more unfair and the economy more unsustainable with each passing year."
Although the overall paper is 12 pages, it's a rather easy read. It's structured around "a series of statements reflecting popular conceptions and misconceptions about the impact of tax rates on economic productivity and fairness" addressing the "statements (and debunk attendant myths) one at a time." For example, statements such as:
- To become fairer, the tax code needs to tax the rich more heavily;
- Tax cuts are just Robin Hood in reverse, taking from the poor to give to the rich;
- Lower tax rates can make the tax burden fairer;
- Ordinary Americans pay more than their fair share of taxes; or,
- It is increasingly harder to climb the economic ladder, and changing the tax code will help.
As noted above, Moore's paper has very many helpful charts, perhaps none more so than the following one, which shows the United States taxes it's "rich" more than "many of the more socialized economies of Europe" although "taxes are 10 to 20 percent lower in the United States than they are in most other industrialized nations."
After spending time with Moore's paper, you'll be able to explain to your liberal/progressive friends the correct facts about who really pays taxes. Moore may even encourage you to read "Who's the fairest of them all?" when it is published. A check of Barnes & Noble and Encounter Books shows it is not yet available.