The 3% illusion

The data for the analysis that follows is located on the following IRS website: http://www.irs.treas.gov/taxstats/indtaxstats/article/0,,id=96981,00.html


Would you be willing to have your taxes increased a mere 3% so that most Americans can get a tax break? If this idea intrigues you, read on…

Let’s segment tax payers in to three groups:

THE INSULATED: These are the people making more than $1 Million/year who through their wealth, power, and access to Washington legislators are able to take as much as they give. There are about 350,000 of these filers. They will not be discussed in this article for obvious reasons.

SALT OF THE EARTH: 88 million tax filers representing people whose adjusted gross income is below $200K/year.

UNREPRESENTED SUCCESSFUL: 3.7 million tax filers of people making between 200K/year and $1 million/year. Here is the data on the Unrepresented Successful (let’s call them US for short):
Average adjusted gross income is $350K
Average taxable income (after deductions) is $290K
Average federal tax paid is $74K for an effective tax rate of 25%

To give the Salt of the Earth each a $1,000 tax refund (whether they paid $1,000 in taxes or not), we need about $90 billion of tax increases which must be obtained from US.

The way we get US to agree is to point out that a mere 3% increase in your effective tax rate to 28% is all that is needed to help out most Americans. Certainly the Salt of the Earth would vote in this type of tax increase and it would seem to me that a similar vote “for” would be done by US.

To make this simple, we would phase out all deductions and exemptions for US and attach the 28% effective tax rate directly to the adjusted gross income of US. The exciting feature for US is that the old higher tax rates under the Bush administration of 33% and 35% are reduced to 28% and there is no longer a need for the Alternative Minimum Tax.

Do I have your vote?