We’ve addressed the issue of “paying their fair share” when it comes to taxes.
We’ve pointed out what the statistical evidence shows: That when counting all sources of income and all federal taxes, the poorest 20% of Americans pay an effective federal tax rate of around 2%; those in the middle class pay around 17%; and the richest 1% of the American population pay more than 30%. If one factors in transfers — money the government hands out to people — the disparity grows even more drastic.
But some — perhaps those with a political agenda — ignore the facts.
A recent example was an article written by Jesse Eisinger, Jeff Ernsthausen and Paul Kiel for ProPublica in which they argue that the rich aren’t paying their fair share.
Their article’s assertions didn’t go over well with Antony Davies, associate professor of economics at Duquesne University, and James Harrigan, managing director of the Center for the Philosophy of Freedom at the University of Arizona. They refer to the trio’s article as an example of bait-and-switch tactics.
Mr. Davies and Harrigan point out that the ProPublica article attempts to redefine “income” to include unrealized capital gains — a definition that neither economists nor accountants nor even the IRS uses.
“For example, if Amazon’s stock price rises by 20%, causing the value of Jeff Bezos’ stock portfolio to rise by 20%, even though Bezos has not sold the stock, these three would call the increase ‘income.’ Any principles-level accounting major would know this is incorrect. Income (specifically, a capital gain) occurs when an investor buys stock at a low price, then sells it for a high price. Simply buying it for a low price and watching the price go up doesn’t constitute anything,” Mr. Davies and Harrigan recently wrote.
It’s not surprising that, according to this new definition, the rich are paying little tax because the IRS doesn’t tax unrealized capital gains. And that benefits everyone. When someone buys a house for $150,000 and later the value of the house rises to $175,000, everyone knows that the homeowner has not received $25,000 in income.
Now, if the owner sells the house for $175,000, that’s a different matter. So too with middle-class workers’ pension and retirement accounts.
When a growing economy causes the value of houses, retirement accounts and a host of other kinds of investments to go up, owners are taxed only when they sell the assets. Prior to that point, all reasonable people know full well that those investments are still investments — not income.
So, contrary to the ProPublica article, the rich aren’t getting away with something. But some still refuse to acknowledge that fact.