Much is being said these days about tax fairness and the 1% not paying their fair share.  I kept hearing so much about this that I decided to do something quite radical, and unusual, in our national discourse on the subject.

I hope you’re sitting down for this.

What I decided to do was actually check the facts.  From the IRS no less.

I know.  Call me crazy in a world where facts are optional.

So anyhow, I got the 2010 IRS tax figures, updated them just a bit to get them current, and wrote a little story to illustrate how much different members of our society are paying toward the total tax bill.

So here’s my story about a dinner party.  Pretend that you are me writing the story after attending with someone who thinks there is a great unfairness in taxes paid.  Then I’ll let you decide about the fairness thing.

And I’ll follow-up with a couple of more facts (there’s that fact thing again) that the general public doesn’t seem to know.  And you can decide about those too.

So here we go.  I hope you enjoy my story — although for some I think it’s going to challenge some deeply held beliefs.

The Dinner Party

So there’s a really nice dinner bash being planned at a great restaurant and we are invited.

When we arrive, we see there are many friends, friends of friends, acquaintances and other people there as well.  In all, there are 100 people that show up.  Quite a turnout, really.

As we sit down at the large tables the restaurant has set up for us, we all agree that we will be fair and just split the bill.

Everyone orders the Surf and Turf the restaurant is famous for because they serve a really large lobster with a big juicy cut of prime rib.  And of course we all have plenty of glasses of fine wine as we eat and talk and meet friends.

It’s a pretty nice evening and everyone has a good time.

Finally the waiter arrives with the check.  The bill for the evening is $10,000.  Well, that sounds pretty big, but for lobster and prime rib and glasses of nice wine at a fancy restaurant, for 100 people, it’s not totally unexpected really, and the bill works out to be $100 per person.

I notice you quickly pay your fair share of $100 – no surprise here, really.  And, thinking to help some of the others, I put $400 on the table.  Eight other people do the same – they pay $400 (four times their fair share) as well.  John, a friend of mine, is extremely generous, and lays out 42 $100 bills on the table – that’s $4200, or 42 times his fair share.

We notice a number of people, quite a few, actually, are just putting about $54 on the table.  Not that we’re counting, really, but it’s about thirty-nine people that have barely paid half of their fair share.

And while we have all been chipping in, even more people have been slipping out the door — half of them, fifty to be exact, who didn’t pay a thing.  Not one penny for the meal.

I can tell you are getting kind of miffed, really miffed actually, and finally you can’t help yourself and say out loud, “This is really not fair.”

I agree with you completely.  Because I know we both mentally tallied what people paid and this is what we came up with.

Just 1 person, John, paid almost half the bill with $4200.

Just 9 people, myself included, paid over a third of the bill at $400 each for a total of $3600.

You paid your fair share of $100.

39 people barely paid half of their fair share at $54 for a total of $2100.

And 50 people, half of the entire group, paid nothing – that would be for a total of $0.  In other words, 89 of the 100 diners didn’t even come close to paying their fair share.

I turn to you and say, “Yeah, kind of a bummer a lot of people didn’t pay their fair share.”

I literally fall out of my chair when I hear you say, in a rather heated voice, “Yes, I can’t believe John didn’t pay his fair share.”

Oh, and I spill my drink (chuckle), making quite a mess at the table.

—–

So that’s my little story I wrote for you that represents how the total tax bill is paid for each year in the United States.  I used 2010 tax numbers, (shown below) and adjusted them slightly to represent how the taxes have gotten even more out of whack, i.e. the top 1% pay more and the bottom 50% now pay 0.

So do you think that the current tax code is unfair, and certain groups of people are not paying their fair share?

Here are some other facts for you.

There are 140,000,000 potential tax payers in the United States.

There are 1,400,000 in the top 1%.  They pay an average tax rate of over 23% (not 18%, or 14% like people think, as in Warren Buffett or Mitt Romney).  This group includes all the billionaires that supposedly are all paying less than the middle class.  So now that myth is exploded with facts.

The top 10% pay an average tax rate of 18.7% (that’s 14,000,000 taxpayers).

The top 25% pay an average tax rate of 15.7%.

The top 50% pay a tax rate of 13.7%.

And of course, the bottom 50%, who everyone seems to ignore in this national discussion, pay 0%, which is most definitely lower than the income bracket above them (chuckle).  Even if you take out the 15% below the poverty line and say they shouldn’t pay taxes, that still leaves 35%, or 50,000,000 taxpayers, who are not paying ANY taxes.

So at every level, the higher the income, the higher the real tax rate that is actually paid.  Hmmm … so much for the upper 1% paying less than the middle class.

Jeez, how much fairer could it possibly be (chuckle)?

To your health and prosperity (and a toast to facts) – John

P.S. As I mentioned earlier, I use 2010 Tax numbers and my source was from the IRS.  Note I adjusted the top to 42%, which has happened in the past two years, and the bottom to 0%, which has also happened in the past two years.  Or ignore my adjustments and just go with 2010 numbers – which are still staggering in the proportion the wealthy pay vs. the lower 50%.

Here’s a link to where I got the numbers, so you can go out and check my facts … hmmm … there’s that facts thing again.

http://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/