High-income earners pay much more than their fair share

What is your fair share of what someone else has earned? That’s the fundamental principle being tested when discussing “the wealthy paying their fair share.”

Politicians frequently use this hackneyed phrase with ill-defined terms in their calls to raise taxes. Still, the numbers don’t support the idea that the wealthy are skirting their financial responsibility to the nation.

According to the U.S. Treasury, the bottom 10% of income earners pay no taxes, and the second income decile has an average tax rate of minus 4.8%. Mechanisms like refundable tax credits mean this group receives more from the Treasury than it pays in taxes, creating a negative rate.

Those in the 20% to 30% of income earners pay an average tax rate of just 2.8%. Predictably, as a person earns more, he or she pays a higher percentage of his or her income in taxes. Still, no one in the bottom half of income-earners pays more than a 10.1% average tax rate.

The average tax rate has climbed 27% for the top 10% of income earners, but many Americans are surprised to learn that the threshold for this group is just $136,000 for individual income earners. Most people in the top-income decile are considered middle class. To find the “wealthy,” we must look at a much narrower portion of the income distribution.

The threshold for the top 0.1% of income earners is $3.3 million, and their average tax rate is 33.5%, meaning just over one-third of their income is confiscated in federal taxes. Then, there are state and local taxes to consider. In places like California and New York, these can push average tax rates close to 50%.

Is it fair to take half of what someone else has earned? And who is wealthy? A high income is not the same as wealth, which is only acquired through saving and investing.

It’s disturbing that the current political climate tends to demonize wealth. The saving and investing of income, not dissipation through spending, generates economic growth. Without savings, capital will decline. That means fewer factories and machines, fewer homes available, slower technological advances and medical breakthroughs, etc.

Investment in capital puts tools in the hands of workers, making them more productive, which increases their incomes. More capital also means more houses and apartments, something America desperately needs amid a housing shortage and cost-of-living crisis. Capital investment also results in higher living standards because it drives economic growth. As capital accumulation spread across the globe over the last century, technological improvements exploded. The percentage of people living in poverty was cut from 80% to less than 10%, even as the population grew exponentially.

The top 0.1% of income earners provide a disproportionate amount of America’s economic growth, which is why they also earn a disproportionate amount of the nation’s income. But the amount of taxes they pay are even more out of proportion, accounting for 14.9% of all federal tax receipts from just 8.9% of family incomes.

That indicates high-income earners are already paying more than their fair share. Unfortunately, complex data like these rarely involve conversations around amorphous words like “wealthy” and “fairness.” Instead, bureaucrats gin up class envy by cherry-picking data to promote a false narrative of imagined animosity between income groups.