Quote:
Originally Posted by flying ^
(cue online reaction in 3...2...1...)
Normal American reaction:
"Man, he paid a TON in income tax!"
"I'm glad the Romneys donated nearly 30 percent of their income to charity."
Normal liberal reaction:
"Man, he makes a gazillion dollars and that's all he paid? He needs to pay his fair share!"  |
The absolute amount of that tax appears to be much. But let me give you a simple example in math, why absoulte numbers are deceiving:
Lets assume there is a population of 300 million (and an estimated 180 million of these people actually work). And the hypothetical wage distribution in the population is like this:
70 million ~ on average 15k p.a. (-5k p.a. subsidies)
40 million ~ on average 60k p.a. (12k p.a. taxes)
70 million ~ on average 200k p.a. (60k p.a. taxes)
Lets assume those with 15k p.a. need in average 5k p.a. in several types of state subsidies to live at the minimum standard (to survive).
Lets assume those with 60k p.a. pay 20% tax (or 12k) and those with 200k p.a. pay 30% tax (or 60k).
The state would receive 40 million * 12k = 480 billion in taxes from the 2nd income group and 70 million * 60k = 4200 billion in taxes from the 3rd income group. The state would have to subsidize the lowest income group with 70 million * 5k = 350 billion. In that scenario the state has a net surplus of 4330 billion.
The overall money available is 17,450 billion. So precentage wise the state has earned roughly 25% that can be spent for the general good.
Lets say the overall money stays the same, but we have a different, more uneven distribution of it:
110 million ~ on average 15k p.a. (-5k p.a. subsidies)
40 million ~ on average 80k p.a. (12k p.a. taxes)
30 million ~ on average 420k p.a. (60k p.a. taxes)
Now for the sake of the argument lets say those 3 income groups pay the same absolute amount of taxes as in the example above (or receive state subsidies).
The 2nd income group would have a tax rate of 15% then and still pay 12k taxes p.a. And the 3rd income group would have a tax rate of slightly less then 15% then and still pay 60k p.a.
So what would the state earn now:
Well the first income group would mean a loss of 550 billion to the state while the second income group remains at contributing a net gain of 480 billion. And the third group would now add another 1800 billion to it. So the overall net surplus of the state is now just 1730 billion. Thats slightly less then 10% of the overall money left to spend for the public good.
But lets take the example to the extremes now. Further tax cuts for everyone, absolute contribution stays at the fixed levels and the natural result will be an even more uneven distribution of wealth:
150 million ~ on average 15k p.a. (-5k p.a. subsidies)
20 million ~ on average 100k p.a. (12k p.a. taxes)
10 million ~ on average 1320k p.a. (60k p.a. taxes)
With the fixed tax margins in the respective income groups the 2nd income group has now a tax rate of 12%. The third income group now has a tax rate of 4.5%.
So what does the state earn under these conditions:
The first income group means a loss of 750 billion. The second income group positively adds 240 billion. And the third income group contributes another 600 billion. The net tax surplus of the state is now 90 billion (or 0.5% of the entire money). So 0,5% can be spend for the public good now.
As you can see, by applying the same absolute numbers in tax money for the 3 income groups, you can retrieve very different results depending on the distribution of money. If you add to the equation that the flawed idea of compounded interests means that those who started with much gain exponentially much more, while those who started with nothing remain with nothing, and those who started with little gain comparably little - you will see, that you need corrective means to keep the whole system balanced.
One of the way to force such a ballance is by the means of progressive tax rates.
Otherwise the situation will end like this:
170 million ~ on average 15k p.a. (-5k p.a. subsidies)
9 million ~ on average 130k p.a. (12k p.a. taxes)
1 million ~ on average 13,730k p.a. (60k p.a. taxes)
The tax rate of the 2nd income group is now slightly under 10% and the 3rd income group has a tax rate of 0.44% now.
The state earns: -850 billion from the first income group. 108 billion from the second income group and 60 billion from the 3rd income group.
So overall the state has a net loss of 682 billion each year. On the long run this doesnt work.