Now that the election is over attention is being drawn to the debate over future tax policy and whether or not cuts will remain in place or be eliminated and so on. This has lead to each side citing statistics to support their side of the debate but the problem is that the figures are not exactly accurate.
For example, those who support keeping the tax cuts in place cite figures stating that the top 1% or 5% or 10% of taxpayers are responsible for paying 20% or 30% or 50% of the taxes, implying that there is some massively unfair burden on those families.
Those who support shifting the cuts are the ones who bring up the claims that over 50% or 60% or 70% of the cuts go to the top 1% or 5% or 10% of taxpayers, suggesting that these families are somehow getting way more of a deal that everyone else.
One would think that it is impossible for both of these claims to be correct, and indeed there is some deception, but depending on how you calculate the figures the numbers could work.
For example if you have three families, one of them makes $ 1,000,000 a year, one makes $ 100,000 a year and one makes $ 50,000 a year.
Now assume that for the 1st family the tax rate is 30%, for the 2nd it is 20% and the third is 10%.
Family #1 would pay $ 300,000 in taxes, family #2 would pay $ 20,000 and family #3 would pay $ 5,000. So from the perspective of the first group (the too much taxes group) the first family pays 92.3% of the total taxes. But at the same time they have $ 700,000 left while the other families have $ 80,000 and $ 40,000 respectively which means they have over 85% of the money left.
It is true that their tax burden is a higher percentage of the three but they also have much more money left at the end.
Now let’s assume that a 10% across the board tax cut is applied. So family #1 saves $ 30,000, family #2 saves $ 2,000 and family #3 saves $ 500. Looking to our ‘tax cuts are for the rich’ group we could see them arguing that family #1 got the same 92.3% of the total tax cuts while the others got just 7.7%.
But if you look at it in terms of amounts paid, family 1 still pays a far higher percentage of the total burden.
The purpose of this post is not to debate the relative merits of tax cuts or new tax programs, it is to point out the fallacy of the rhetoric from both sides. If you want to have a debate about the pros and cons of a progressive versus a flat tax system, then go to it. But don’t play games with the numbers, it insults all of us.