Buffett is Right, the Rich Should Pay More in Taxes

Warren Buffett's op-ed last week calling on Congress to raise taxes on the wealthy has struck a nerve with conservatives, stirring charges of class warfare and zingers about how the billionaire investor should write a check to help Uncle Sam. Exemplifying the right's opprobrium, the reactionary Tax Foundation has been lambasting Buffett in a series of recent posts and has actually gone so far as to call on low- and middle-income Americans to pay more before the rich do.

We're coming for your loot, Scrooge.

The rationale trotted out most often by the organization to defend its position is currently one of the more popular conservative conceits: the super rich already "pay nearly 40 percent of the income taxes" and "50 percent of American households pay no income tax at all." At first blush, these statistics might give one pause when confronted with a call for higher taxes on the rich, but let's unpack the argument a bit.

The Tax Foundation is trying to claim that a group's share of the total income taxes paid in any given year should help determine that group's tax rate. Yet it's not the share that a group as a whole puts into the income tax pie that matters so much as the tax rates that each of that group's members pay. Indeed, the super rich's share of total income taxes paid in a certain year serves little useful purpose for policy discussions and is simply a rhetorical device employed by anti-tax zealots to halt revenue discussions in their tracks.

Similarly, the fact that roughly 46 percent of households will pay no income tax in 2011 doesn't provide a ringing endorsement for raising their taxes before those of the rich. As Ezra Klein recently noted, "For about half of [the households], the standard provisions of the income tax wiped out their liability." So, why did standard provisions wipe out their liability? It's because those households make so little money.

Ninety-nine percent of those earning less than $10,000 a year pay no income tax, just as nearly 81 percent of those bringing home between 10K and 20K yearly. A good number of those who pay no income tax are also elderly folks who "get an extra standard deduction" and "an exemption for some Social Security benefits." Moreover, members of this group – nonironically referred to by the Wall Street Journal as "lucky duckies" – already pay a much greater share of their income on payroll, sales, and state and local taxes compared to the wealthy.

The fact is, over the last 40 years the federal tax system has become increasingly less progressive. There has been a dramatic decline in top marginal income tax rates – which affects the most affluent among us – while payroll taxes – which disproportionately affects low- and middle-income folks – have substantially increased. If any group can spare some additional income, it's the super rich.

Image by Flickr user KentonNgo used under a Creative Commons license.

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