Managing Director of DLG Wealth Management Discusses Tax Fairness 101
We are in the midst of tax season, but we are also in the midst of an election year very much focused on our country's current tax structure. With Obama’s proposed 2013 budget plan to increase tax rates for those who make $250,000 per year or more, it is important to know how the tax system works and what this will mean in sense of fairness and future of the economy. Important answers to questions we need to know when deciding on candidates to vote for include; Who’s paying what and what is the percentage? Who’s left to deal with the bulk? Is increasing taxes just?
As voters, we need to have the numbers broken down so it’s easy to understand our system. In our economy, everyone has a different situation. Some people make a very low income and can’t afford to pay taxes and then there are those who can afford it because of their higher income. In this article we discuss tax fairness 101 and put it into terms we can understand as consumers. Say we are in debt for $100,000 and we have 100 people to raise money to pay off the debt. Based on individual circumstances, it cannot be divided equally where each person pays $1,000 to the debt. So if we use the system our Government uses to collect taxes:
• The richest 10 percent in America pays 2/3 of the taxes. So for sake of this example, 10 of the 100 people will pay $67,000 or $6,700 per person on average.
• Forty percent of Americans don’t pay taxes, so in this example the 40 out of 100 people pay $0 to decrease the debt.
• The remaining 50 percent have to pay the rest, which totals $33,000 or $606 per person on average.
CHART #1 USING THE 10%/90% BREAKDOWN:
$67,000 10 PEOPLE $6700/P AVG
$33,000 50 PEOPLE $660/P AVG
$0 40 PEOPLE $0/P AVG
We can also breakdown our example using the Occupy Wall Street 99%/1% method. The breakdown looks like this.
• The richest 1% in America pay 40% of the federal income taxes. In our example that means 1 person would pay $40,000
• The same 40% of Americans will pay $0
• The remaining 59% of Americans will pay $60,000 or $1,017 each on average
CHART #2 USING THE FAMOUS OCCUPY WALL STREET 99%/1% BREAKDOWN:
$40,000 1 PERSON $40,000
$60,000 59 PEOPLE $1,017/P AVG
$0 40 PEOPLE $0/P AVG
In this election year, voters are going to have to decide if they believe that our tax system is unfair and the wealthy must pay more or our system is fair. The numbers above paint the picture, all voters have to make their decisions. The unfair/fair rhetoric is going to be the main theme of our Presidents election campaign. It doesn’t matter how many times the terms fair or unfair are used to describe our tax system, the numbers are the numbers. These numbers should help voters be more informed and hopefully make the right decision.
