Tuesday, December 10, 2013

Learning economics through pictures: Who pays taxes in the US?

This is the fourth post in a series about learning economics through pictures.

Links to ...

Here are two pictures showing who is paying taxes in the United States:

Source: Greg Mankiw's principles of economics textbook.  And a bonus picture

(Source: Taxfoundation.org)

These two related pictures provide several insights:

1. First, incomes are unequal.  The occupiers rallied about it, and while my view of the occupiers is generally quite negative, they were right about the fact that incomes in the US are very unequal.  (In my opinion they're wrong about what to do about inequality, their view that showers are overrated, and more, but on this point they're right.)

2. Another claim by the left, however, that the rich do not pay their fair share in taxes, is incorrect.  Those who make high incomes contribute far, far more than those without high incomes.  The top 1% paid over 28% of the federal income taxes collected in this country.  28%!  That is stunning contribution from such a small percentage of our country's citizens.

3. Those earning these high incomes are contributing far more than they receive back in government spending.

4.  When I see the bottom graph, I fear what may happen.  It shows that middle income individuals are receiving more in benefits than they are paying in taxes.  I'm not certain this is entirely true, but you will run into a problem when the median voter is getting more back from the government than he or she is contributing.  I think they're probably including social security/medicare in here, which isn't an ideal comparison, since many people pay into that system prior to receiving those benefits (so I don't view it as unpaid benefits).

Regardless of how benefits received are computed, the percentage of people in this country that are receiving more in government benefits than what they're paying in taxes has been growing.  When people have no sense of responsibility to pay for their own food, healthcare, housing, phones, etc., we'll see more votes for politicians who promise benefits without regard to the costs.

The politicians get power and a nice salary.  The voters get to legally rob their neighbor.

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