Class Warfare

Calls to Cut Taxes Help the MOST RICH, Not You!

Our middle class is collapsing. For over 30 years America's MOST RICH have been waging war against the middle class and poor. They have hidden their secret agenda in a fancy term called Supply Side economics. Our rich have argued that if we reduce their taxes, lower government regulation and increase privatization that ALL Americans would prosper.

Warren Buffett claims this economic argument is a fraud. "The rich are always going to say that, you know, just give us more money and we'll all go out and spend more, and then it will trickle down to the rest of you," he told Christiane Amanpour on This Week. "But that has not worked the last 10 years, and I hope the American public is catching on."

The Tax Foundation reported in July 2009 that between 2000 and 2007, pre-tax income for the top 1 percent of tax returns grew by 50 percent, while pre-tax income for the bottom 50 percent increased by 29 percent (not adjusted for inflation) ...

Since 2001, the average tax rate has fallen from 4.09 percent to 2.99 percent for the bottom 50 percent of tax returns and has fallen from 28.20 percent to 21.46 percent for the top 0.1 percent and 27.5 percent to 22.45 percent for the top 1 percent. TaxFoundation

I ask you: are you prospering?
Groups like the Tax Foundation will tell you the tax burden of the Top 1% now exceeds the taxes paid by the remaining 95% of filers. This is correct. America's MOST RICH are paying more ... yet I show conclusively that the MOST RICH are paying more in total taxes because they have become increasingly wealthy and are hogging more and more of the American economic pie. Contrary to their claims, America's MOST RICH are paying relatively less tax than three decades ago and ensuring the financial devastation of you and your family.

Warren Buffett, who is the world's second richest man and leading American entrepreneur, testified he paid a 16.5 percent federal tax rate on his billions while middle class workers at his company paid 25 percent. I include an illustration below from MoveOn.org that highlights Warren's point: tax loopholes and laws allow millionaires to pay as little as 15 percent while middle class workers pay 25 - 28 percent. Mr. Buffett added recently:

There's class warfare, all right, but it's my class, the rich class, that's making war and we're winning.

Updated Income Figures

In the income/tax analysis used later in this article, I relied on the latest published information, which was 2005 data. The Center on Budget and Policy Priorities released more recent information in June 2010 using 2007 figures. Figure 1, below, highlights income gains for the Top 1%, Highest Fifth (Top 20%), Middle Fifth and Bottom Fifth. Income gains by the MOST RICH and Top 20% dwarfed the rest of the population. source

Background and History

Congressional Budget Office, Appendix_wtoc.pdf, Table 1C, page 8

Average Income of our MOST RICH Compared Over Time
Looking at the Highest Quintile - or top 20 percent - more closely. The CBO details average income figures for the Top 10%, Top 5% and Top 1%. The outrageous transfer of wealth is even more apparent when looking at our MOST RICH. See the chart below.

The Top 1% made 10 TIMES the average income of Middle Quintile earners in 1976. By 2005 this disparity had increased to 26 TIMES: $1,558,500 v. $58,500. As most of us are aware this is ridiculous and the massive income inequality is crushing middle class families.

Congressional Budget Office, Appendix_wtoc.pdf, Table 1C, page 8

After-Tax Income by Income Group: 1979-2005
Comparing After-Tax Income for the eight groups paints an even more distressing picture. The Bottom 20%, our nation's poorest segment of society, made on average $10,800 in 1979. By 2005 their average income had grown to $11,100, which is increase of only $300 in 26 years. This translates into a raise of less than $12 per year - less than one dollar per month - on average over the period (see the table below).

These figures are not adjusted for inflation, which runs about 3 percent per year on average. Thus the Bottom 20%, 2nd Quintile, 3rd Quintile and 4th Quintile lost financial ground over the last three decades. Food, energy and medical costs have increased at a much faster rate than the general rate of inflation and explains why so many Americans are slipping into financial ruin.

On the other hand, as we examine America's most fortunate members, Top 20%, Top 10%, Top 5% and Top 1%, we see where income growth has occurred. The nation's most wealthy, Top 1%, realized a growth rate of 8.2 percent per year on average - more than tripling their take-home income - over the period.

Congressional Budget Office, Appendix_wtoc.pdf, Table 4C, page 41

State and Local Tax Rates Compared

A study released by the Institute on Taxation and Economic Policy adds to Buffett's remarks. Their research found "nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy."

America's TOP 1% now pay 6.4 percent of their income in state and local taxes on average. They actually pay less - since they can deduct their state and local taxes from their federal tax bill. State and local tax burden on America's rich, after taking this offset into account, drops to 5.2 percent.

Middle-income families pay 9.4 percent of their income in total state and local taxes after the federal offset. Our poorest families pay even more. Tax collectors take 10.9 percent from our nation's BOTTOM 20%, more than double the share they take from the nation's TOP 1%. source

These findings are further supported by a study from the Institute on Taxation & Economic Policy, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. As the graphic below shows, state and local taxes are highly regressive - nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. source

The "Rich" Say They Pay More

This is a claim that receives a great deal of SPIN in political discussions. Examiming federal Pretax Share of Income, our MOST RICH have done well for themselves over the past 30 years. In 1979 the TOP 20% garnered 45.4 percent of all wealth. By 2005 this percentage had INCREASED to 55.1 percent.

Pre-Tax Total Wealth Held by MOST RICH

Congressional Budget Office, Appendix_wtoc.pdf, Table 1C, page 9

Federal After-tax Share of Income figures are similar. In 1979 the TOP 20% took home 42.4 percent of all wealth. By 2005 this amount had increased to 51.6 percent. In other words 20 percent of our population now controls over 50 percent of all wealth after paying federal taxes.

After-Tax Total Wealth Held by MOST RICH

Congressional Budget Office, Appendix_wtoc.pdf, Table 1C, page 10

Examining the ratio of pre- to after-tax income for the period we can resolve the question whether the TOP 20% actually pay more taxes today.

Pre-Tax Income Compared to After-Tax Income: 1979-2005

The TOP 20% pay less by percent today. They do pay MORE taxes - due simply to the fact they are making so much more. Roughly they have increased their total wealth by about 83 percent while they pay about 60 percent more in taxes.

Keep in mind most of our elected officials fall into the TOP 20% group. They have an active interest in keeping THEIR taxes low and INCREASING their wealth - at YOUR expense. They clearly do not represent YOU or ME. America's RICH are taking more than their fair share from our system, which is collapsing your family and our nation.

As Warren Buffett warns, "There's class warfare, all right, but it's my class, the rich class, that's making war and we're winning."