Billionaire investor Warren Buffett wrote an op-ed in The New York Times on Monday, describing how the wealthiest Americans have been “leaving the middle class in the dust.” Buffett suggested that a minimum tax rate of 30 percent should be enacted on Americans making more than $1 million each year.
Buffett’s comments come as Congress prepares to address the Bush tax cuts, which are set to expire for all Americans on Jan. 1. His argument that the wealthiest Americans should pay higher taxes is embraced by many pundits, politicians and citizens who claim that the rich are not contributing enough federal revenue, especially during the nation’s current economic downturn. Though Congress must raise tax rates for the wealthiest Americans from a practical, fiscal standpoint, it’s wrong to assume this is justified because they do not pay their fair share of taxes.
America’s top earners already contribute almost the total amount of federal income revenue. According to the Congressional Budget Office, the top 20 percent of Americans carry 67.9 percent of the federal tax burden. And about 40 percent of these taxes are paid by the top 1 percent alone.
In contrast, the bottom 47 percent of U.S. households pay no federal income taxes, as documented last year by the nonpartisan Tax Policy Center. If anything, this broad overview of America’s tax system implies that the rich are paying too much — a talking point that has certainly become popular with conservative pundits.
But the truth is that America’s wealthy have been able to make increasing financial gains despite carrying an ever-larger share of the country’s total tax burden. The Wall Street Journal used data from the Tax Foundation to show that, during the last decade, the top 1 percent’s share of income grew nearly five times faster than their share of taxes paid. To be fair, the wealthy are carrying federal income taxes at the highest percentage in years — The Wall Street Journal reported last year that the top 1 percent of earners now pay double the share of the tax burden that they paid in 1980. But new loopholes have made it easier for the very wealthy to skirt the system — especially the ability to classify income as “carried interest,” which effectively taxes earnings at a low 15 percent capital gains rate.
The fact that wealthy Americans take advantage of these tax deductions is not directly unfair, as these options are available to all U.S. citizens. The payoff, however, is much higher for wealthy citizens because of the drastic difference in tax rates.
Those who argue vehemently against higher taxes on the wealthy frequently push for a flat tax, under which every American will be taxed at the same rate, but the rich pay more because they earn higher incomes. A flat tax seems superficially simple and beneficial, but unfortunately would force the tax rate to be unsustainably low. After all, a family of four with a total annual income of $40,000 can’t afford to even pay $8,000 in taxes with a 20 percent flat tax. But if that flat rate is any lower, the rich will be getting the exact same break they currently enjoy with “carried interest” capital gains tax rates. For Congress to adopt a flat tax rate would be fiscally irresponsible.
Percentage wise, the rich are certainly paying their fair share. They can afford, however, to contribute more, and, in these dire economic times, they must. America’s deficit is more than $16 trillion and states are in dire need of fiscal aid. Washington should pursue a multi-level strategy to increase federal income through increased taxes and an overhaul of loopholes and superfluous tax credits.
And students should lobby for this. People often disregard students’ arguments for higher tax rates on the wealthy because of our limited work experience. For their points to be taken seriously, students should avoid the misguided argument that “the rich don’t pay their fair share.” America doesn’t need to penalize the wealthy — it needs to ask them for help.
Ryan Townsend is a sophomore majoring in business administration. His column “The Blame Game” runs Tuesdays.