Thursday, October 16, 2008

Tax Matters

Regarding Obama's claim about his tax plan for individuals, here is some information from the IRS' Statistics of Income (SOI) staff. Keep in mind as you read that SOI doesn't have a horse in this race, they just report what the numbers are. Your interpretation may vary.

If you look at this spreadsheet (Excel needed) you will see how the taxes were distributed for 2005, the latest year that SOI has information on. I suspect this is the data the campaigns may be relying on.

Please note -

3.5M filers with Taxable Income of $200K or more collectively produced ~$1.9B in taxable income and paid ~$476M in taxes. This group constitutes ~2.8% of the total filers (~104M) and they generated ~49% of the income taxes. The largest single group in this array were the $200-499K filers all 2.7M of them, who produced $657M in taxable income for a group tax bill of ~$153M. So 77% of this group is responsible for 32% of the taxes produced by the group.

Now, that leads me to wonder if Senator Obama ought to raise the bar, however in looking at the rest of the group, and seeing the wild swings in tax bills, which requires more analysis than I care to do tonight, I am convinced that revisiting the tax rates for the wealthiest may not be a bad idea. However, and this is a BIG "however", let us not forget that the Internal Revenue Code is written by lawyers for their friends. Thus deductions abound for the wealthiest along with additional tax opportunities. You just have to browse the chart and then let your head explode in shock and awe.

Now - from the "Figures Lie and Liars Figure" file, consider this:

The group that is paying the most taxes is the $50-499K group. ~32.5M filers (40% of all filers), collectively produced $3B in taxable income (59% of the total), and paid ~$545M (59% of the total) in taxes. My friends, I do believe we have found the much touted middle class!

Obama's tax plan would leave most of those folks alone. However the 2.8% that are paying 49% of the tax bill, with the top level of my "middle class" included, would probably object on the basis that they are the ones footing the bill. Well, the upper level of that "middle class" clearly is. What about the guys with incomes of $500K and up?

Let's look - $500K and up filers constitute 8% of the total filing population. They produced 24% of the total taxable income. They paid 33% of the taxes. This is a very small group that is paying a lot of money, even with the Bush tax breaks.

This isn't looking good for anyone. Lesson learned - taxes are taxing? Seriously, neither candidate is in a position to do much with the tax code besides tweak it. If they really want it to be fair, then scrap the whole thing and start from scratch. Alternatively, let's can the whole deduction routine and raise the exemption limits. Let's apply the KISS principle (Keep It Simple Stupid!) and see where that takes us.

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