Thursday, October 04, 2007

Action America Analyzes IRS Collections by Income Category (Percentile) for Tax Year 2005

It's that time of year again. The official IRS Collections Data for 2005 has just become available and Action America has published our annual analysis of that data in an article titled "1986-2005 IRS Collections Data by Income Category (Percentile)."

Interestingly, as in previous years, the latest IRS data shatters the popular myth that there are so many loopholes in the tax code that the rich don't pay tax. In fact, as past years' data has shown, the latest IRS Collections data, broken down by income category or "percentile", conclusively dispels that myth. In fact, this data leaves no doubt that the rich pay far more than their share.

Here is just a sample of what's in this year's tax collections data.

• The top-earning 1% of taxpayers earned 21% of the income.
• The top-earning 1% of taxpayers paid 40% of taxes collected.
• That's roughly double their share, based upon income.

Once again, this report shows that the Bush tax cuts didn't benefit the rich, as liberals would have us believe. In fact, the most relevant benchmark of tax load - the ratio of percent of total income earned, to the percent of total tax paid, by each income group - has been higher for the top-earning 1% of income earners, in each of the years 2001 through 2004, than in any of the prior four years, when that ratio was trending down. Only in 2005 has that ratio dropped to close to the level that it was when Bush took office. Interestingly, the years 2002 and 2003 were the first years since 1996 that the top-earning 1% paid more than double their share of taxes, based upon income. Try to spin that as the media may, such data demonstrates, beyond any shadow of a doubt, that if anything, the Bush tax cuts actually hurt, rather than helped the richest taxpayers.

But there is a lot more to it than just that. Check out the article for more analysis and a link to the actual data, in spreadsheet format, on the IRS web site. Afterwards, come back here and discuss it. [more...]

Note: Every year, between September and February, the IRS releases their most recent collections data, sorted by income category or "percentile". Because of the time it takes to complete collections and to compile the data, the released data is always about two years old.


MGK821ZA said...

Sorry, I don't have any sympathy for the uber wealthy and their tax "burden". Its a simple fact, if the government wants money, it has to get it from the people who have it, and that is the rich. Its difficult to feel sad for the likes of Brittany Spears, Michael Vick, Bob Nardelli, or Hank Greenberg who have to pay some higher taxes. And it they want to leave the country, then in the words of our Texas Governor: "Adios mofos".

ActionAmerica said...

I predicted to friends that just such a short-sighted comment would be the first comment to be posted to this article.

In particular, I was talking about the willingness of the short-sighted, to bid goodbye to the wealthy taxpayers, who finally get fed up with being punished for their hard work and success. The reason that such an attitude is so short-sighted, is because it fails to consider who will make up the difference in lost taxes, if only the top-earning 1% of taxpayers were to leave.

If the top-earning 1% were to leave, that would mean that we would lose 40% of our tax base. That would then mean that the rest of us would have to make up the difference, which translates into a 67% tax increase. Now certainly, not all of the top-earning 1% will leave. So, what if only half of the top-earners leave. Would you be willing to shoulder a 33% tax increase?

A report from the former INS (now BCIS) revealed that more than 250,000 US citizens and permanent residents are already leaving the US permanently, every year. How many of those people do you think are poor. The rich are the only people who can afford to live offshore and there are numerous jurisdictions where the tax and weather climate are much more favorable than in the USA.

It's about cause and effect and the bottom line. Keep punishing the wealthy for their success (the cause) and they will protect their bottom line, by moving themselves and their capital offshore (the effect). The effect for those of us who remain the the US, is that our bottom line, on the Form 1040, will be even higher than it already is.

The new IRS data leaves no doubt that our most talented citizens and investors pay far more than their share of the tax burden and the INS data shows that many of those people are leaving. Is there a correlation?

My guess is that there is a very definite correlation and my guess is based upon observable fact. You see, as I write this, I am sitting in my second home, in London, England. Since I spend a lot of time in the UK, I know many US expats - some of whom have left the USA permanently. When I ask them why they left, the very first thing that they always say is, "The IRS." The second thing that they say is usually "Taxes."

We need to keep our eye on the bottom line. If we continue to punish the wealthy, the wealthy will improve their bottom line by leaving and the bottom line of those of us who remain will suffer. If we encourage more wealthy people to domicile in the USA, then the bottom line for all of us improves.

Would you rather have a system that you consider entirely fair or would you prefer lower taxes for everyone? Think about it...

MGK821ZA said...

Amazing, in this reply you just parroted the same line of illogic as in your original article.

“Would you rather have a system that you consider entirely fair or would you prefer lower taxes for everyone?”

Your question is obvious BS nonsense, but this is often what one is to expect out of business consultants. If the the rich 1% were to pay less taxes and the government takes in the same amount of money, then the other 99% must pay higher taxes, not lower taxes. It is impossible to collect the same amount of tax, but everyone pay less.

The only way for everyone to pay less taxes is to either reduce spending or borrow more money. Hey, cut spending, I can support that.

As for people leaving the country, as long as the US GDP is increasing, it does not matter that some people are emigrating, because they are simply being replaced by others moving up who are earning money and paying the taxes. So the part of your argument which says that, by the rich leaving, the pool of taxpayers is reduced and therefore those remaining must pay higher taxes, is false. Because the pool of taxpayers is not shrinking.

Your argument about the status of those who are leaving the country is merely anecdotal. Below is a list of the top 20 richest Americans from Forbes Magazine website. If half of them are leaving, then 10 of these people should be off the list by next year. Would you care to place a wager on this?

William Gates III
Warren Buffett
Sheldon Adelson
Lawrence Ellison
Sergey Brin
Larry Page
Kirk Kerkorian
Michael Dell
Charles Koch
David Koch
Paul Allen
Christy Walton & family
Jim Walton
S Robson Walton
Alice Walton
Steven Ballmer
Abigail Johnson
Carl Icahn
Forrest Mars Jr
Jacqueline Mars

That you are living in London is great, it’s a global economy. I am sure there are plenty of technical consultants in Silicon Valley who will take your place. When I Googled “Technical Consultants Silicon Valley”, there were 1,730,000 hits. If you are still upset about your taxes, I recommend buying a Youngs Oatmeal Stout beer and having a good cry.

ActionAmerica said...

MGK821ZA, it's interesting that you should mention the Forbes lists, since there is some significant data in those lists, that further proves what I have been saying - that the wealthy are leaving.

But before I get into that, I want to address one of your misconceptions. You said, "If the the rich 1% were to pay less taxes and the government takes in the same amount of money, then the other 99% must pay higher taxes, not lower taxes. It is impossible to collect the same amount of tax, but everyone pay less."

Here's a heads-up. Wealth in the USA is not a constant.

If we stop punishing wealth and reward it, instead, there will be more wealthy people who will want to live here. If there are more wealthy people to pay tax and the government takes the same amount, then we all pay less. On the other hand, if we continue to punish success, then more and more wealthy taxpayers will leave and those of us who remain will have to pay more tax, to make up for the lost tax base.

Now, as to the Forbes lists. I actually did a study of the Forbes World's Billionaires list and the 400 wealthiest Americans list, over a three year period, a few years ago. Please don't get me wrong. I don't want to imply that the Forbes lists are anywhere near accurate. It's just that they have used the same methodology for gathering the data to compile those lists for years. Therefore, the error should be roughly the same, from year to year.

Over a three year period, the number of billionaires on the 400 Wealthiest Americans list dropped by about 13%, with a 7% drop in average net worth of those who were still on the list, while the number of billionaires on the Worlds Billionaires list increased by more than 80%.

Today, based upon those Forbes numbers, US billionaires are increasing at barely the inflation rate, while worldwide billionaires are increasing at 6 times the pace of US billionaires. Also, the total net worth of US billionaires is not even keeping up with inflation, at only 5%, while the total net worth of worlds billionaires is increasing at 76%.

So I ask you. Wouldn't you rather have some of those foreign and US expatriate billionaires paying US tax, instead of paying Bahamian or Belizean tax and have those billions creating jobs in the USA, rather than offshore.

If you want to use the names on the current Wealthiest Americans list, I will give you some names that are no longer on that list, along with their current countries of citizenship.

• John “Ippy” Dorrance (Campbells Soup) - Ireland.
• Kenneth Dart (Dart Container) - Belize.
• John Templeton (Templeton Fund) - Bahamas.
-- BTW, though born in Tennessee, Templeton told the press that he saved over 100 million in taxes the first year.
• Mark Mobius (Templeton Emerging Markets Fund) - Germany.
• Fred Freible (Locktite) - Turks & Caicos
• Joseph Bogdanovich (Star-Kist & H.J. Heinz) - he never stated what citizenship he now holds.

The list goes on. Four of the J. Paul Getty grandsons, Richard Minns, Paul Arison and more. Just the people on this list represent billions in lost tax base. If they were paying US taxes today, your taxes and mine would be able to be a lot lower... (if we could keep Congress from spending that windfall).

We should be trying to attract the billionaires who pay the vast majority of the tax, rather than punishing their success and driving them away.

Unknown said...

The Soviets had an exemplary program of steal from the rich and give to the poor. It was huge success! :) They're still reaping the benefits today.

nano said...

If the top 1% are paying less than Warren Buffet's secretary how is it possible that if the top 1% leaves the U.S. the tax base will lose 40% ??? Every person in the top 1% has a TEAM of tax experts to minimize their taxes who work year round - they probably spend more on the tax experts than they do on their taxes...

nano said...

I would like to know if U.S. billionaires have compared the taxes they pay in the U.S. to taxes paid by billionaires in other developed countries, i.e. Great Britain, France, etc ...or are they relocating to smaller less developed countries with less developed tax systems? I am wondering how many days per year billionaire expats spend in the U.S. Is it possible to become an expat and still spend the majority of your time in the U.S. ?

ActionAmerica said...

nano mentioned Warren Buffet, as an example of a billionaire, who pays less than the average person. But the problem with using examples, is that the examples that people always seem to use are the exceptions to the rule.

There are exceptions to every rule. But you don't base policy on the exceptions, but rather on the overall picture.

That's why I used raw IRS Collections Data. It details the TOTAL dollars earned by and TOTAL taxes collected from each income group, AFTER all tax breaks, deductions, and exclusions. Within each group, some pay more and some pay less. But the top 1%, including those who paid at high rates and those who cheated, were responsible for 40% of all taxes collected that year.

Not all wealthy people earn their money in the same way. Salaries are taxed at a higher rate than investment income. Furthermore, some are much more aggressive in trying to cut taxes than others. A very few, like for example, Leona Helmsley, get too aggressive and go to prison. But they are the exception; not the rule.

For every Buffet, who pays less than his secretary, there are several other wealthy people who are paying even more than the average for their income percentile. But only the TOTALS for each income percentile tells an accurate story.

ActionAmerica said...

nano asked about tax rates in other countries.

Most major countries have much higher marginal tax rates than the USA. In France, the top marginal tax rate was 70%, the last time I checked. I know this, because I know a family that moved from the USA to France and who fell into that 70% marginal rate.

That may sound like jumping from the frying pan, into the fire. But it actually saved him millions. You see, the USA is the ONLY major nation on the planet that taxes the offshore income of its citizens. So since the family that I mentioned earned more than 90% of their income in other nations, their effective tax rate in France was only about 7% (10% of 70%).

They still paid income tax in those other countries, but had no French liability for income earned in those other countries, as they would have had, if they had remained in the USA.

The maximum cumulative number of days that any foreign citizen may legally remain in the USA in a single year is 182 days (half a year). Kenneth Dart tried to get around that by getting Belize to appoint him to a Consul position in the USA, but the US State Department nixed the appointment.

Also, there is a law that was passed in 1996, that has never been enforced, that gives the State Department the right to deny any expat whose income or net worth, at the time of expatriation, exceeded what the government thinks they should have had, the right to deny such people re-entry. That law was supposed to scare wealthy people into staying, but it had just the opposite effect, so it was never enforced.

I hope that this info helps.

Anonymous said...

Zogby link (estimating the number of Americans permanently leaving) is broken.

My observation of Americans permanently leaving are that the overwhelming majority are the best - smart, entrepeneurial people who create significant value.

Conversely, the overwhelming majority of the people who are permanently coming here are the worst, the Mexican underclass that Mexicans don't want coming here to live off anchor babies, food stamps, welfare, and crime.

ActionAmerica said...

James, the results of that study were published 5 years ago and I suppose that Zogby decided that it was time to take the report down.

So I'm posting a second link, from Barrons, that details the same info. I assume that most people trust the accuracy of Barrons. Here is the link:

Thanks for pointing out the bad link. I'll go out on our main site and update all of those links soon, as well. I also have to change the URL's that I am using in my soon-to-be-published book, though I would have probably double and tripple-checked everything in the book, before publication.

ActionAmerica said...

BTW James, last October, I had the opportunity to meet the president of New Global Initiatives, the company that paid Zogby to do that study and I acquired a copy of the original study. It's very interesting reading. Unfortunately, I do not have re-publishing rights, so I can only use a portion of what Zogby originally put in the public domain, as fair use.

Fearless Leader said...

I understand your analysis and I disagree with your final conclusions as they are more political in nature (meaning biased) than an objective analysis would provide.

16 Trillion debt and growing larger, faster every year. 60 Trillion in unfunded obligations through 2050. We are on a path of unsustainable spending that will lead to either hyperinflation, severe depression, or real war.

The issue of who pays what tax burden is a short sighted issue.
Yet, my only question is, does it really matter anymore?

ActionAmerica said...

Fearless Leader, I can only assume that you didn't read the rest of the article, by clicking [more...], at the end of the article on this page.

The issue isn't so much, "who pays taxes", but rather, "when the government punishes those who earn the most and who can most afford to leave, that's exactly what they'll do".

Absolutely, we need to seriously cut spending, if we are to save this nation. But think about this.

If we were to drive off just the top 1% of income earners (less than 1.4 million taxpayers), it would mean that the USA would lose more than a third of our tax base. Then where will we be?

Imagine having to cut all of today's deficit spending and then one-third of all other spending, on top of it. According to Zogby, more than 3 million Americans relocate offshore every year and they excluded those who were just moving offshore for work. The real question is:

"How many of those millions of expats are poor?"

Other studies lead to the conclusion that most of them are at least in the top 10% of income earners (those who pay 70% of all taxes).

By punishing success, the US government is beating it's proverbial head against the wall and the more it hurts, the harder they do it. They're driving our tax base away and instead of stopping what they are doing that's causing the pain, they just increase their attacks on success.

I'm not rich. But maybe I am biased, because if enough of the rich leave, I'll eventually begin to look rich to the government. When they run out of rich people to tax, they'll turn to you and me. Think about it...

squid12 said...

Finally get fed up with being punished for their hard work and success.

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