The year 1913 saw the birth of many notables that helped define America. Jesse Owens proved the Germans were not the superior race when he dazzled us in the 1936 Olympics. Rosa Parks showed how one person standing up for her rights could create a national civil rights movement. Vince Lombardi made us want to win because it was the only thing. Jimmy Hoffa became the most famous labor organizer, but after missing for 13 years was reportedly buried under the end zone at Giants Stadium. That led Sean Landetta, then the Giants punter, to quip “It gives a whole new meaning to kicking into the coffin corner.”
But the most iconic event that created the largest effect on our lives wasn’t born that year. It was created by an act of Congress and it was the first income tax.
It had little impact on the American worker who at the time had an average income of $800 per year. Exemptions existed for the first $3,000 of income and another $1,000 if you were married. Even then the tax rate was only 1% up to $20,000. To put that in perspective to today’s dollars, $4,000 in 1913 would be equivalent to $98,000 today. If these rates were in effect today, it wouldn’t be news, nobody would be talking about it and I certainly wouldn’t be writing this article.
But in the age of runaway governments, who want to tax more while providing fewer services, it is worth noting who is paying these taxes. To listen to Bernie Sanders, Hillary Clinton and President Obama, the rich have it easy, don’t pay their fair share and are denying us the American dream. It seems all of our ills from unpaved roads, crumbling schools and lack of a safety net of social services are the result of the greedy rich who don’t want to send more money to Washington.
In 2014 the top 20% of earners (anyone earning over $134,300) reported income equal to 50% of all the income reported that year. Those folks contributed 83.9% of all income taxed paid. The next 20% paid 13.4% and the following 20% paid 5.9%. That’s a total of 103.2% of all income tax paid. Due to earned income and child credits, the bottom 2 quintiles totaling 13.8% of income reported getting back more taxes than actually paid.
Dividing the group in half, those earning 50% of the top income pay 97.2% of all income taxes with the bottom half paying 2.8%.
While I’m not advocating that the government’s overspending should fall to the lowest earners, bear in mind money refunded today is borrowed money to be repaid by future generations.
What is noteworthy is the rallying cry that seems to be in every Democratic stump speech: The rich are not paying their fair share. This is a movement that can gain momentum. Keep in mind it was only 30 months ago when we saw the first demonstrations by organized labor demanding an increase in the minimum wage to $15. That has become a reality in California and will undoubtedly spread to most parts of this country.
For those clamoring to raise taxes on the wealthy, just consider this: In 1969 Congress heard testimony that 155 individuals with income in excess of $200,000 ($1.3 million in 2015 dollars) paid zero federal income tax. Congress set out to fix that by creating an Alternative Minimum Tax whereby these individuals would have to prepare 2 tax calculations. The first would be the normal calculation that we all do and the second would eliminate certain deductions, apply a different tax rate and then they would have to pay the higher of the 2 taxes. There were revisions through the decades but Congress never indexed the components to inflation. By 2012 it was estimated that the AMT would affect close to 40 million taxpayers.
They finally did an inflation index and today about 4 million will pay the higher AMT tax. But if you are married and file a joint return, income that is exempt from the AMT is only $83,400. Hardly the target group Congress had in mind in 1969 when AMT was considered tax reform so that the rich pay their fair share.
So whether you have already filed or are finishing your taxes tomorrow, keep in mind the image conjured up from a Winston Churchill quote: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Have a happy tax day, if there is such a thing.
Peter Cassella is a Ramona resident.
