MYTH #5:
The "wealthiest 1 percent" of taxpayers are just millionaires who pay fewer taxes every year.
FACT:
Most are actually small businesses, which are assuming more of the tax burden every year.
Politicians often deride policies aiding the "wealthiest 1 percent" of Americans. Reporters paint pictures of fat cat millionaires eating lobster in their cavernous mansions, indifferent to the poverty their wealth undoubtedly caused.
The facts, however, paint a far different picture. Of the 750,000 taxpayers who pay the highest marginal tax rate of 35 percent--the top 0.5 percent of all taxpayers--more than two-thirds report small-business income.10 While corporations pay the corporate income tax, most small businesses pay the individual income tax. These small businesses are generally concentrated in the higher income tax brackets.
So when politicians call for higher taxes on the top 1 percent, they are really proposing higher taxes on small businesses. Prior to the 2003 tax cut, these small businesses paid a higher top tax rate (38.6 percent) than most large corporations (35 percent). Yet businesses with fewer than 100 employees represent 98 percent of all businesses and create 36 percent of all jobs. They are the engines of new job creation, and taxing them out of business only eliminates jobs.
The wealthiest 1 percent--again, mostly small businesses--are not undertaxed. In 2000, they earned 21 percent of the income and paid 37 percent of all individual income taxes. Businesses also bear nearly all the cost of the 15.3 percent payroll tax, including the half that is removed from their employees' paychecks.
By comparison, the bottom 50 percent of all taxpayers earn 13 percent of all income and pay just 4 percent of all individual income taxes--and that percentage is dropping rapidly.11
Overall, the intense focus on "income distribution" is misguided, because:
It assumes that the economy is a fixed pie and that one group's wealth causes another group's poverty. In reality, the economy is expanding, and all income classes are getting wealthier. Some incomes will grow faster than others, yet the vast majority of Americans enjoy rising incomes throughout their lifetimes. Even America's "poor" would be considered middle-class in Europe and upper-class almost anywhere else. By contrast, socialist countries (e.g., North Korea, Cuba, and the former Soviet Union) have achieved relative income equality--everyone is equally poor.
People often move across income ranges. Much of the bottom half consists of younger, unmarried workers who move into the top quarter as they marry and enter their peak earning years before dropping back down after retirement.12 Accordingly, lifetime incomes (and taxes paid) are much more equal than one-time "income distribution" snapshots would show.
The term "income distribution" implies that the nation's wealth simply falls from the sky and that Washington has a duty to distribute this bounty fairly. But wealth and income are not "distributed," they are created. When Microsoft turns sand into computer chips, it is creating wealth where none existed. A farmer who grows a field of corn is creating wealth. These workers and businesses should have the right to keep much of the wealth they create.
Combine the effects of this myth with the fact stated in the previous point that business taxes are an overhead expense built into the final price of a good or service, and you have a nightmare waiting to happen if taxes are raised. Corporations and small businesses will raise prices on goods or cut costs (jobs are one of those costs), unemployment and prices will rise while wages stay the same, which prompts the government to 'help' by taking more money from businesses and expanding the 'social programs' already eating 42% of the federal budget. Imagine over $1,000,000,000,000 extra dollars making money in our economy if we dropped those damn things. We'd also force the moochers in our society to actually contribute, which means competition and innovation increases and everyone enjoys a better lifestyle (not caviar and wine, but better).
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