Pots & Kettles

"Only in America could the rich - who pay 86% of income taxes - be accused of not paying their "fair share" by those who pay nothing."

That's a tweet that wandered past recently. I can't begin to reply to it in a tweet. So here I am in Blogger again.

Firstly, I was unaware that the top rate of income tax in America was 86%, perhaps because it's nothing like that much. A quick Wikipedia check suggests between 21% & 16% "Effective income and payroll tax rate".

Somebody is hyping that 86% a little. But lets ignore that and just nod our heads sagely and say "Hmm yes, the rich sure are liable for a lot of Income Tax on all that money".

Notice I use the word "liable". Unfortunately, the very rich end of any countries population can afford to use tax loopholes like offshore tax haven accounts, declaring spouses as employees, declaring business expenses, and evading tax liability in basically as many wonderful ways as their tax avoidance guru accountants can suggest to them. Since we are dealing with people in the $400,000+ income bracket here, such avoidance quickly adds up to tens of thousands of $ per person. Hundreds of thousands for the super rich. Add them all together and ... that's a fair few million / billion in lost tax revenue. Most of it legal.

The bottom end of the salary scale doesn't get as much chance to avoid tax legally, but lets face it, wherever you look on the income scale, people will be attempting to pay as little tax as possible. If it's taxed at source in your pay packet though like a vast majority of working Joe's and Joanne's, that's it. It's paid in full. No argument.

Right down at the bottom you get the black economy of cash in hand work. Add all of that lot up together and ... hey .. it's also a fair whack of cash. Although individually we're only talking about a few $100 to $1000 avoided, there are a lot more poor people than rich people. Figures are murky here. A big chunk of low paid workers still pay the income tax and just struggle on in life, so we can deduct that from lost tax. It seems likely that the total tax evasion of the lower classes is still a lot less than the massive sums avoided by the upper classes.

BUT.

The argument is screwed from the start. The problem is, if EVERYONE at the top, bottom and middle of society actually paid the taxes without either legal or illegal tax avoidance then the amount taxed on everyone could be less. The problem is all the loopholes and dodges, mainly at the upper end of tax avoidance, that get exploited and never dealt with.

And it also ignores the far bigger problem of corporate tax evasion. The entire loss in tax income across all income tax for all citizens of the US is far smaller than the loss in tax due to corporate tax evasion. That doesn't even get a mention.

You can spot this one in the current fiscal cliff farce talks in Washington. Yes it is pretty pointless talking about solving a trillion $ debt problem by increasing personal taxation on the wealthy. But nobody in government has the balls to say "Well actually, it's the companies and corporations we need to collect proper taxes from".

And that folks. Is capitalism at work. It owns the government, it maintains the loopholes and god forbid anyone should try and address the real problem because they'll threaten you all with job losses and economic recession if you even dare think about it.

See?

Wasn't going to fit in a tweet was it?