February 18, 2008

Naivejim, taxpayer

I pay taxes.

I just don't pay very many of them.

It goes something like this: I deliver pizzas, the government visits my paycheck before I do and makes a few withdrawals to buy $500 hammers and medicine for old people, I deliver more pizzas. Then, once a year, the government decides to test everyone and see if they paid more or less than they should have. You file your 1040s, then they cut you a check or ask you to cut one for them. Everyone's happy. Except people who have to give the government more money.

Since I am a lowly pizza man, I get away with not paying much for income taxes, (except those that go to the state of Michigan. For some reason, they don't like to give money back. Usually, because our economy blows, I end up giving them more money.)

Naturally, each year I wonder "If I'm not paying taxes, who is?" Don't you worry, someone is. But I know why I don't pay much income tax: I'm in the bottom half of the tax bracket. Do you know how the percentages break down? I'll spare you any big, long, complicated numbers, (because I don't understand or have them) and give you the gist of it:

Percentile of wage earners (Bottom income of respective percentile) : Percentage of Federal income tax paid by that percentile: (source: IRS)

Top 1% ($364,657) : 39.38%
Top 5% ($145, 283) : 59.67%
Top 10% ($103,912) : 70.30%
Top 50% ($30,881) : 96.93%

In other words, nearly 40% of all federal taxes are taken from the top 1% of the population, and 97% of the income tax is paid by half the population. So, if you're doing the math:

Bottom 50% (<$30,881) : 3.07%

The bottom half pays just 3% of the federal income tax. I'm in this bracket, and that's why I get a check back every year. Apparently, Michigan has not gotten the memo that, being a relatively poor pizza man, they should let me keep more money.

Who does most of the investing in this picture? I'd venture it's the people in the top ten percent who bear 70% of the tax burden. These are the people who own businesses and start new ones.

Say you're in that segment, and you have an extra $100,000 lying around, and you see that there's an unserved part of the population needing an astronaut-themed ethiopian restaurant. So you think to yourself, "Self, I'd like to open an astronaut-themed Ethiopian restaurant." So you take your $100,000 and open an astronaut-themed Ethiopian restaurant. You rent a space in the local strip mall, buy some supplies, meet some suppliers, start buying food and hiring staff. Soon, you're serving a payroll of $400,000 and doing $1,000,000 in business each year. You give poor Jim, an astronaut-loving trained ethiopian chef, a job when his pizza delivery gig falls through. All because you had an extra $100,000 lying around.

Now imagine that someone got elected and, in the name of equality, decided it was a bad idea for some people to have a lot of money when others have so little. They say, "Well, let's just make a few adaptations to those tax laws, and take a little more from the rich folks and help the po' folks out a bit." And everyone says, "Yeah, that's a great idea. The rich folks can spare it." So you, wishing to take a risk and open an ethiopian astronaut-themed restaurant, get bumped up into a new tax bracket and no longer have your $100,000 lying around. Jim, having had his pizza delivery gig fall through, gets no job. Good news, though: He gets government-commissioned dentistry, provided he fills out the proper forms and waits the 6-8 weeks for approval. In 7-10 years, he'll be cavity-free.

More dumbed-down economics for us simple folks: Barstool Economics.

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