Taxing the rich

Sylvia Porter

November 13, 1990|By Sylvia Porter | Sylvia Porter,1990 Los Angeles Times Syndicate Times Mirror Square Los Angeles, Calif. 90053

Many of you who thought you were simply well-off financially learned this year that politicians consider you both rich and ripe for plucking. Yet, most of you who have incomes in the $100,000 range have been wondering how you can make ends meet.

Why? You have been misleading yourself because you're thinking in terms of your gross income. In fact, your actual income is what you have left after inflation and the taxes you already pay. What remains is a shockingly lower number. This point somehow was lost on the Beltway factions last month.

During the recent budget battles in Washington, it was implied that budget and deficit woes could be made to go away by forcing the rich to pay "their fair share."

It is ironic that those who have accumulated some money have been made out to be the villains in all of this, in that such villainy is something most Americans hope one day to achieve! This is politically safe because the vast majority of Americans are not wealthy.

Who are the rich? These are easy facts to determine from statistics of the Congressional Joint Committee on Taxation, the Commerce Department, the Congressional Budget Office and the Internal Revenue Service:

* Of all U.S. taxpayers, 6.4 percent make $75,000 or more each year. Only nine-tenths of 1 percent make more than $200,000.

* This is slightly less than 1 percent of the population reported income in 1988, the latest year for which statistics are available, of about $417 billion, or about 13 percent of all reported income.

* While the income is disproportionate, the tax is even more so. Although they represent 13 percent of the nation's income, this less than 1 percent of the population pays 25 percent of the federal income tax.

* This group invests heavily -- more than 99 percent reporting interest and dividend income. This compares to 63 percent of the population as a whole. It constitutes almost 16 percent of the income-producing investments in stocks, bonds and deposits.

* The investment figure does not include investments in family-owned companies and the like.

If the government were to seize every penny of income from this group, it would pay barely one-fifth of the federal budget. Never mind state and local taxes. This means that as politically attractive as it sounds, taxing the rich more heavily won't produce much income for the government.

By so doing, though, investment in the country would be reduced by at least 16 percent, which would spell an instant and enormous recession. And when investment is reduced, income from investment is reduced. So, therefore, is tax revenue.

Of course, practically no one is proposing that all income of the wealthy be seized. But other proposals are nearly as strange: One example was the 10 percent surcharge on the income of those who make more than $1 million per year. But, there aren't very many such people -- only 65,303, according to the IRS. Such a surcharge would add a little more than $17 billion to federal coffers. This is more than 1.5 times the amount these people collect in interest and dividends annually. And it would cover slightly more than one-tenth of 1 percent of the federal budget.

A look at the numbers suggests that for all its political value, taxing the wealthy more heavily wouldn't help much.

Here's why: There aren't all that many rich people. The rich already pay a quarter of the income taxes and make an eighth of the investments. What is politically popular to say, it turns out, would be economically meaningless, or even harmful, to do.

It's not unlike the situation with savings and investment, which are essential to your financial well-being, and that of the country. Yet on your income tax return interest and dividends are listed as "unearned" income, suggesting that you don't really deserve to have it.

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