As income grows at top, we're milking it for taxes

This article was in the Chronicle a week ago and on one even said a word about it. I'll let you read it first and add my comments at the end.

Burns: As income grows at top, we're milking it for taxes

Today's awkward situation: Suppose the rich and the affluent were cows. And
suppose the rest of us ran the farm. The answer, according to the most recent
IRS statistics, is a resounding yes. Over the last two years, tax collections
have enjoyed the largest increase in history. We're doing right well by the
herd. They are treating us well in return. The herd is growing. It is providing
a good deal of milk in the form of tax payments. The most productive cows on the
farm are otherwise known as corporate executives. Their specially engineered tax
milk comes from stock options, which are generally taxed at ordinary income tax
rates when realized. So it's the rich and creamy 35 percent stuff. The more of
these cows we have in the herd, the greater the productivity of our tax farm.
The usual view is to bemoan the growth of income at the top. After that, we
worry about how it is depriving the rest of us of our ability to pay for cell
phone minutes, lattes, lottery tickets and other life essentials.

In fact, if "taxes are the price of civilization," most of us are getting our civilization
cheap. Why? Because the rich and affluent — our cash cows — are paying most of the bill. In 1986, according to IRS data, the top 10 percent of all households had incomes of $48,656 or more, collected 35.1 percent of all income and paid 54.7 percent of all income taxes. They paid an average tax rate of 22.6 percent.

By the recently released figures for 2004, the top 10 percent of all households
enjoyed adjusted gross incomes of $99,112 or more. They collected 44.3 percent
of all income. And they paid 65.7 percent of all taxes, at an average rate of
18.6 percent.

Lower tax rates on top-earner income had the beneficial result of
reducing the portion of the tax burden that the other 90 percent had to pick up.
Viewed from the other end of the pyramid, the bottom 90 percent of all
households collected only 55.7 percent of all income. But they paid only 31.8
percent of all taxes. Better still, they paid at an average rate of only 6.9
percent. You're pretty much excused as a taxpayer if your income is in the
bottom 50 percent, some $30,124 or less in 2004, because your average tax rate
will be only 2.94 percent. If human beings didn't change their behavior when
taxes were changed — and the idea that they don't is one of the most persistent
delusions of politicians — we could see some interesting tax policy changes.

Suppose, for instance, that the average tax rate on the cash cows in the top 10
percent was increased from 18.6 percent to an average tax rate of 27.3 percent.
The poor cash cows would be trapped into paying enough income tax so the other
90 percent wouldn't have to pay a cent. I'd bet heavy money that more than 51
percent of all voters would be in favor of such a plan. Indeed, I can imagine
the positive vote going to nearly 90 percent.

Then again, if you yanked an additional 8.7 percent from those fabulously well-off households that earn $99,112 or more, there's a good chance much of the income being taxed would mysteriously disappear. So the bottom 90 percent would still have some income taxes to pay. Needless to say, this is not the end of all tax discussion.

Much could be said about the regressive impact of the employment tax. We could still worry about the long-term impact of the increasing concentration of income among the top earners, or the difficulty many workers have in increasing their real
income. The one thing we really can't talk about is whether the affluent are paying their fair share. They are

Now for the commentary... For the first time Mr. Burns writes something that can be appreciated by the conservative portion of society. He is correct about all of his income tax issues and has hit the nail right on the head. Those that are on the top of the income ladder have no problems with paying a REASONABLE tax on our income, however if that tax get to be to punative then we will look for ways to shelter that money from taxation thus cutting off the supply. Really simple. The funny thing is my family fall into the top 10% because of our income. So if I want to bitch and complain about Taxes I am well within my right because as Mr. Burns puts it I am paying my fair share, and should be able to voice my discontent with the way it is being used.