Shortly after President Obama unveiled his “jobs plan” and claimed that millionaires and billionaires need to pay their “fair share”, Republican members of Congress began the debate on the merits of his specific proposals by labeling it as nothing more than class warfare.
In response, Obama fired back that it has nothing to do with class warfare. Instead, it’s simply a matter of math. To figure out which side has it right, a closer look at the numbers is in order.
President Obama has made it a point to repeat the mantra that the rich should “pay their fair share”. What is clearly meant by that statement is that he believes the upper level of income earners should have their tax rate increased to pay for additional spending he believes will spur economic growth.
There are numerous ways to examine the validity of this argument. We will look at two.
The top three percent of income earners, those making $250,000 or more, generate approximately $2.3 trillion in total annual income. Even if the federal government confiscated ALL their earnings, it would only fund government spending for just over six months.
Indeed, these households are paying more than those in lower income brackets. According to an AP report, households earning more than $1 million will pay an average of 29.1 percent of their total income in federal taxes in 2011.
Households earning between $50,000 and $75,000 will pay an average of 15 percent of their total income in federal taxes in 2011.
Another way to judge whether or not the rich are paying their “fair share” is to compare the tax burden each segment of the income brackets bears.
According to IRS data, 39 percent of all income taxes are paid by the top 1 percent of income earners. The top 25 percent of income earners pay 86 percent of all income taxes, while the top 50 percent of income earners pay 97 percent of all income taxes.
What’s interesting about this debate is that back in 1980, when the top income tax rate was 70 percent, the richest 1 percent only paid 19 percent of all income taxes. With the top rate reduced to 35 percent, they now carry more than double that share.
If Mr. Obama is truly interested in generating additional revenue, he should seek out ways to reduce the tax burden on those who earn the most and are most likely to create new jobs. By unleashing the power of our capitalist economy, jobs will be created and additional tax revenue will be the natural result.
The math in the current jobs bill just doesn’t add up.