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Are the rich not paying their “fair share”?

Welcome to VoteFacts.  It has been repeated by the president as well as those within his party that the wealthy need to pay their fair share.  He has had this to say,

"Since you can't close the deficit with just spending cuts, we will need a balanced approach...   Yes, that means... reforming our tax code so that the wealthiest Americans and biggest corporations pay their fair share."

To be sure, the concept of "fair share" is very subjective and might be different for everyone.  However, this oft repeated sentiment is a good reason to focus on facts and step beyond the talking points surrounding our tax system as who bears the burden.  So, let's get to it.

The Congressional Budget Office (CBO)

The federal tax system is progressive - that is, average tax rates generally rise with income.  Much of the progressivity of the federal tax system derives from the individual income tax. (Each quintile contains one-fifth of the population, ranked by adjusted household income.)

Higher-income households have a much greater share of the nation's before-tax income, and they pay a much larger proportion of that income in taxes. Households in the top quintile (including the top percentile) paid 68.8 percent of all federal taxes, households in the middle quintile paid 9.1 percent, and those in the bottom quintile paid 0.4 percent of federal taxes.

Screen Shot 2014-04-10 at 9.45.40 AM

The seven tax brackets look like this: 

Screen Shot 2014-04-10 at 10.55.07 AM

(Click table to expand it)

Also, how does the US tax system compare with other nations when it comes to the wealthy bearing the larger overall tax burden?  Let's take a look.

The Organisation for Economic Co-operation and Development (OECD)

In many high-tax countries, taxes embody little progressivity - this is particularly the case in Denmark, Iceland and the Netherlands.  And household taxes are more progressive in the United States than in most EU countries.

In a 2008 OECD table, the United States is shown to have the highest share of taxes of the richest decile, with Switzerland showing the lowest share of taxes of the richest decile.  Interestingly, Switzerland also shows the second lowest share of market income of the richest decile, right behind Korea.

Screen Shot 2014-04-10 at 10.12.46 AM

The tax burden is measured by the ‘tax wedge as a percentage of total labour costs’ – or the total taxes paid by employees and employers, minus family benefits received, divided by the total labour costs of the employer.  Taxing wages also breaks down the tax burden between personal income taxes (PIT), including tax credits, and employee and employer Social Security Contributions (SSC).

The highest average tax burdens for childless single workers earning the average wage in their country were observed in Belgium (56.0%), France (50.2%), Germany (49.7%) and Hungary (49.4%).  The lowest were in Chile (7%), New Zealand (16.4%) and Mexico (19.0%).  The US was 29.6%.  

The highest tax wedges for one-earner/two children families at the average wage were in France (43.1%), Greece (43.0%), Belgium (41.4%) and Italy (38.3%). New Zealand had the smallest tax wedge for these families (0.6%), followed by Ireland (6.4%), Chile (7%), and Switzerland (9.5%). The average for OECD countries was 26.1%.  It was 18.4% for the U.S.


It is a curious question to consider whether the majority of Americans would be willing to reduce the overall tax burden on upper earners, while increasing it on middle and lower earners, in order to more closely resemble European nations?  However, that is not our question here today.  Do you think that the rich in our nation are not paying their fair share?

Also cast your vote on whether we should tax consumption rather than income.  Click the post question below to vote:

Should we replace the progressive income tax system with a progressive consumption tax system?

Resource Links

CBO on taxes

CBO tax brackets

OECD, Page 7

OECD Tax wedges

OECD Table

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