A misleading tax analogy

Following are some thoughts on the misleading tax analogy posted at United We Stand.


I don't necessarily dispute the mechanics of the system, but the presentation is fundamentally misleading.

Although the actors in the story are individuals, they actually represent decile groups, e.g. the richest man represents the top 10% of income earners. Consequently, the $59 that he pays does not represent an individual income tax rate of 59%, but rather the sum total amount that the top 10% of earners pays relative to everyone else. This amount could be 1% of their individual income or 100%; it's impossible to know since the data to do that math is missing from the story.

More realistically, the average tax rate of the top 10% of earners in 2006 was 19% according to IRS data. According to the 2007 tax rates, the top tax bracket - those earning over $350k - paid a maximum rate of 35%. Given the graduated nature of the tax brackets (e.g. the first $15k is taxed at 10%, $15k - $64k is taxed at 15%, ..., only that portion over $350k is taxed at 35%), you would have had to earn $6 million to reach the maximum 35%, by my back-of-the envelope calculations.

Wealth is a matter of perspective. Earning $250k/yr does not seem like much when you spend most of your time looking up the scale at those making millions. However, when you look down the scale and realize that you are sitting on top of 98% of the population, in my estimation, you are doing quite well.

There is a question as to whether those making the most benefit most from how tax dollars are used. I'm a little less certain about that, but my inclination is yes. While their life and liberties are equally protected by national defense, the amount of wealth protected per dollar spent on national defense is a pretty direct relationship. And while a wealthy individual may not drive on publicly-funded roads any more than a poor person does, the source of their income is directly tied to that infrastructure in terms of bringing customers to their door and delivering their products to their customers. I imagine there are numerous other examples of how the wealthy benefit more from publicly-funded infrastructure.

Oh, did I mention that Dr. Kamerschen didn't write that analogy? See his personal page at http://davidk.myweb.uga.edu/