This is a pretend story. It will NEVER happen. I hope you enjoy it anyway.
Once upon a time the President was sitting in the White House talking with his Budget Director. He realized that the money for the nearly $4 trillion dollar budget had to come from somewhere.[i] Henry, his Budget Director, told him about 42% came from individual income taxes and about 9% from corporate income taxes. Another 1% came from estate taxes. 40% came from payroll taxes.[ii] “Of course that is not enough to cover all the federal government spends,” Henry explained, “that is why the deficit is growing so rapidly.”
Who pays all of these taxes?” the President asked. Henry responded that taxpayers are ranked by their “adjusted gross income” as reported on their tax returns. The top 1% pay 36.7% of all income taxes, the top 10% pay 70.5% and the top 50% pay 97.3%. Those in the lower 50% pay only 2.25%.[iii]
“That seems like a lot for the top ten percent to be paying,” commented the President.
“Oh, it’s much better than that, President. We really get them!” chortled Henry. “The top rate for rich people’s personal income tax is 35%.[iv] But you must realize that almost all corporations are owned by rich people, so the rich are really paying the corporate income tax too. The corporate tax rate can be up to 38%.”[v] That means when their corporations earn profits we grab 38% of it, and then when the corporations pay those profits out to their shareholders as dividends we tax the same money up to another 35%. If the value of their stock goes up over the years, and they sell it, then we tax that at a 15% capital gains rate.[vi] And when they die we take 35% of their property through the federal estate tax.[vii] Don’t be disappointed President, we’re doing everything we can now to raise all of these tax rates on the rich so we can get even more money from them.”
“How much more money would rich people be getting if all income taxes disappeared?”
Henry looked thoughtful for a moment and said, “Well, I guess it could be 73% because they wouldn’t have personal or corporate income tax to pay.”
“Are the non-rich paying any taxes?”
Henry answered apologetically: “Yes. We can’t avoid it. Even the rich could not pay for all of Social Security and Medicare. Everyone pays payroll taxes to cover those programs. That provides 40% of federal revenue. Of course when people receive back what they have contributed to Social Security we tax them on that as well.”
“Thanks, Henry. I’ve got to think about this.” It was a new and astounding realization for the President. Rather than being enemies of the country, the rich were overwhelmingly its primary benefactors. The President wanted to analyze and understand what he had heard. He needed to get away from the Oval Office, maybe even get out of the White House so he had his chauffer and Secret Service take him on a short drive around the mall. He admired the tall and striking Washington Monument and thought, no matter how courageous the early Patriots were, they would have never won the war without money to buy munitions, food, and everything else that went into winning.[viii] The President then came to the Lincoln Memorial, and realized once again that winning the Civil War—with the wonderful result of freeing the slaves—depended not only on brave troops and generals, but also on money. Who provided it? One major source was the nation’s first progressive income tax.[ix]
As the President thought about these crucial wars, as well as all wars since then, he realized everything depended upon tax payers. Yet they went unacknowledged.
Upon returning to the White House the President called in his Cabinet and pronounced: “I have come to the realization that tax-payers, particularly the rich—in fact, overwhelmingly the rich—are a primary cause of all that we have accomplished since the nation’s conception. Yet no one ever applauds their contribution. As far as I know, there is not a single monument to tax payers yet their contribution is far more valuable than so many politicians whose statues litter the landscape. I propose a new National Monument to Tax Payers!”
His Cabinet was shocked! They were also terrified, because their entire plan for his re-election (and thus keeping their jobs) was based on vilifying rich tax payers. He was adamant, however. “We’re it not for taxpayers—overwhelmingly rich taxpayers—our troops would be fighting with sling shots. There would be no welfare payments for the poor, no tuition grants for students, no investment in research. We need to honor those who provide all of these things.”
“But, President,” spoke up the Secretary of the Treasury, “tax payers shouldn’t be honored. We force them to pay taxes. We take it from them whether they like it or not. We confiscate their property if they don’t pay!”
“That may be true, Secretary” said the President, “but don’t we honor the draftees along with those who volunteered to fight in World War II. Compulsory contributions are still contributions.”
That ended the discussion. Soon plans were going ahead for a new monument, a duplicate of the Washington Monument, to “The American Taxpayer.” After great debate, and only upon the final insistence of the President, it was decided the Monument would reflect the respective contributions of each group of American tax payers. The Washington Monument is 555 feet tall.[x] Rather than being smooth, like the Washington Monument, the American Taxpayer Monument would have faces of great taxpayers displayed in bas-relief on its sides. They discovered that the portion devoted to really rich tax payers, those in the top 1% who contributed far more than anyone, would take up the bottom 200 feet of the monument. The next 9%, those in the top ten percent of tax payers but not in the top one percent, would take up about another 200 feet. Most of the remaining space, about 140 feet, would go to those in the top 50%.
Pictures of the remaining 50% of income tax payers were an artistic challenge. Millions and millions of them had to be scrunched into the top 12 feet—the top 2.2% of the Monument. The U.S. Commissioner of Fine Arts objected, claiming that those who paid no income taxes should not be so poorly portrayed. He rightly noted that these millions upon millions provided much of the greatness of America. The President’s response was, “Yes, you are right. Someday we’ll need monuments to Academics, Laborers, Artists, whomever you want. But right now the country needs money. Let’s celebrate those who provide it!”
Yes, yes, it will never happen—a President expressing gratitude for those who provide the where-with-all for every Presidential program. But I told you at the beginning this was just a pretend story.
[iii] Those are number for 2009. http://ntu.org/tax-basics/who-pays-income-taxes.html
[vii] It’s scheduled to go up to 55% next year. http://wills.about.com/od/understandingestatetaxes /a/estatetaxchart.htm
[viii] Read, for example,about Robert Morris. http://en.wikipedia.org/wiki/Robert_Morris_(financier)