The truth about tax cuts

The Detroit News - - Business - BY TIM­O­THY G. NASH

There is a com­mon nar­ra­tive among our na­tion’s po­lit­i­cal lead­ers, me­dia per­son­al­i­ties, Hol­ly­wood stars, and nu­mer­ous po­lit­i­cal pun­dits re­gard­ing our tax sys­tem. Un­doubt­edly, you have heard the ar­gu­ment “rich peo­ple” pay lit­tle, or at least not their fair share, of the United States’ per­sonal in­come tax bur­den. Fur­ther­more, low in­come to poor Amer­i­cans pay a dis­pro­por­tion­ately high amount of to­tal per­sonal in­come taxes in the United States an­nu­ally. Now, they ex­claim out­ra­geously, the well-to-do are once again tak­ing ad­van­tage of the sys­tem via the new Trump tax cuts.

The facts, how­ever, tell a dif­fer­ent story. To make our case, let’s look at the most im­por­tant mea­sure of the dis­tri­bu­tion of any tax bur­den: the amount and per­cent of taxes paid by in­come groups and the tax rate paid by each group.

North­wood Uni­ver­sity’s McNair Cen­ter for the Ad­vance­ment of En­trepreneur­ship and Free En­ter­prise re­cently ex­am­ined IRS tax data for 2015, the most cur­rent, and the Tax Foun­da­tion’s fis­cal facts re­port #570 “a Sum­mary of the Lat­est Fed­eral In­come Tax Data,” re­leased this past Jan­uary.

Ac­cord­ing to the Tax Foun­da­tion, just over 141 mil­lion Amer­i­cans filed a tax re­turn in 2015. They re­ported more than $10 tril­lion in ad­justed gross in­come, and paid just un­der $1.5 tril­lion in in­come taxes. The av­er­age tax rate for all tax­pay­ers was 14.34 per­cent. It is in­ter­est­ing and im­por­tant to note that the bot­tom 50 per­cent of all tax­pay­ers paid an av­er­age in­come tax rate of 3.59 per­cent while the top 1 per­cent paid an av­er­age in­come tax rate of 27.1 per­cent.

In ad­di­tion, the tax foun­da­tion study and IRS data con­firm that the top one per­cent of in­come earn­ers in the United States in 2015 earned 20.65 per­cent of all per­sonal in­come and paid 39.04 per­cent of all per­sonal in­come taxes, while the top 10 per­cent of all in­come earn­ers paid 70 per­cent of all per­sonal in­come taxes in 2015.

Con­trary to pop­u­lar opin­ion, not only did the bot­tom 50 per­cent of tax­pay­ers pay an av­er­age per­sonal in­come tax rate of less than four per­cent, they paid only 2.38 per­cent of to­tal U.S. per­sonal in­come taxes in 2015.

In ad­di­tion, be­fore the Trump tax cuts, Amer­i­can busi­nesses were bur­dened with among the high­est cor­po­rate in­come tax rates in the in­dus­tri­al­ized world, which put Amer­i­cans and Amer­i­can en­ter­prise at a com­pet­i­tive dis­ad­van­tage. The num­bers thus far in­di­cate Trump’s pro­gram will have a pos­i­tive im­pact on Amer­i­can com­pet­i­tive­ness and long run U.S. GDP growth by low­er­ing the cor­po­rate and in­di­vid­ual in­come tax rates.

We be­lieve num­bers don’t lie, a suc­cess­ful econ­omy must pro­vide fi­nan­cial in­cen­tives for peo­ple to work hard and to work smart. There­fore, lo­cal, state and fed­eral pub­lic pol­icy must not overly bur­den suc­cess­ful peo­ple with ex­ces­sively high in­come tax rates. Sim­ply put, if you want a pros­per­ous and dy­namic econ­omy to form and grow, you must give en­trepreneurs and in­trapreneurs in­cen­tives to take risks and main­tain and/or cre­ate new jobs and new busi­nesses.

There­fore, it is im­per­a­tive for lo­cal, state and fed­eral govern­ments to not only con­sider ways to grow tax rev­enue, but equally im­por­tant — with our loom­ing $21 tril­lion na­tional debt — to con­sider ways to en­hance op­er­a­tional ef­fi­ciency while re­duc­ing spend­ing wher­ever pos­si­ble rather than in­creas­ing taxes.

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