Sunday, September 21, 2008

Truth about Taxes and Rich People

I don't have anything against rich people. Really. I just think that since we are talking about tax cuts in this election season, and commentators are throwing around terms like "class warfare" and "socialism" we should all have a better sense of what we are talking about.

So check out this little graph from the Washington Post. It describes reasonably well the impact of the tax proposals that McCain and Obama have.

The most obvious interesting fact that I come away from this with is that McCain wants to give the top 1% (from approx $700,000 per year income to $3M) a tax decrease that is roughly equal to the average family income. And he's selling this as a middle class tax cut!

The next thing that I notice is that I can't tell how much money rich people make. I'm going to guess that the income bracket that is between 37,596 and 66, 354 is pretty evenly distributed. There are lots of people throughout that income bracket, so that assumption makes some sense. But the top 1% (really the top 1% without the top .1%) make between roughly 700k and 3M. That's a lot of range and not a lot of people, so I can't guess what the distribution is. So that means that I can't guess what the tax impact is. I mean a $115k tax increase might be a big deal for someone making 700k. But it should be barely noticeable for someone making $3M.

And then there's the bit about the people who make more than $3m. We know how many there are, about 0.1% of the people in the country. But how much do they make? We know that the bottom of that group makes $3M per year, but what about the middle, the average or even the high end? The short answer is that the government will not tell us that information. But a better answer is that their income is enormous. (Check out this site for more info on the income distribution. It's a little old school and difficult to read, but read it.)

Then think about this: who benefits from the the roads that get people to work? The people who are going to work, or the people who make money from other people's work? Both benefit. So if I benefit from you (and your 1,000 co workers) going to work in my factory, should I pay the same as you? Or should I pay 1,000 times as much?

The point is that people with more money, by definition benefit more from our government (and that's before considering the $700B injection of government money into the financial system) than do people with less money. Recently, that's gotten way out of whack, with the middle class being asked to shoulder more and more of the burden. Obama's plan is a small step in making things start to make a little more sense.

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