That's simply not true. The percentage of total taxes paid by the very rich (the top 1%) is approximately the same as the percentage paid by middle class Americans (the 4th quintile, average income $68,700). Here are the details:
Internal Revenue Service figures show that the very rich paid 23% of their incomes in federal income taxes in 2006. The middle class paid about 8% of their incomes in federal income taxes. Based on U.S. Congressional Budget Office figures, the very rich pay just under 2% of their incomes toward social security, while the middle class pays just under 10%. According to a study by The Institute on Taxation and Economic Policy, the very rich pay about 7% of their incomes in state and sales and property and excise taxes, while the middle class pays approximately 10%. Another year of Bush tax cuts will reduce the taxes of the very rich by at least 3% more than the middle class.
So total taxes for the very rich are 29% of their incomes (23% + 2% + 7% - 3%). Total taxes for the middle class are 28% of their incomes (8% + 10% + 10%). These figures agree with CTJ's 2011 estimate of total taxes paid.
(5) A Financial Transaction Tax (FTT) Would Hurt the Economy
This fallacy would have us believe that a tiny tax on financial transactions is going to hurt the economy, even though the underlying reason for our economic collapse was the excessive, reckless, unrestrained, free-for-all trading of trillions of dollars of speculative derivatives.
The inventiveness of this fallacy is impressive, with claims of lost jobs, harm to ordinary investors, and the threat of exchanges moving overseas. The Wall Street Journal calls the FTT a "sin tax."
An FTT isn't likely to interrupt the global trading frenzy or cause any sudden defections from financial mega centers. The United Kingdom has had a tax on stock trades for decades, and the London Stock Exchange is humming along as the third largest exchange in the world. The CME Group, made up of the Chicago Mercantile Exchange and the Chicago Board of Trade, had a profit margin higher than any of the top 100 companies in the nation from 2008 to 2010.
On the contrary, the FTT has extraordinary revenue-generating potential, on a global scale. The Bank for International Settlements reported in 2008 that annual trading in derivatives had surpassed $1.14 quadrillion (a thousand trillion dollars!). For the U.S. alone, revenue estimates by the Center for Economic and Policy Research and the Chicago Political Economy Group approach a half-trillion dollars annually.
And at the more basic level of simple fairness, it should be noted that while an American mother pays nearly a 10% sales tax on shoes for her kids, millionaire investors pay .002 percent (2-thousandths of a percent) for a financial instrument. That kind of tax disparity is what really hurts.
In the 1970s, University of Chicago economist Arthur Laffer convinced Dick Cheney and other Republican officials that lowering taxes on the rich would generate more revenue. The delusion has persisted to this day.
Soon after the Reagan tax cuts, in 1984, the U.S. Treasury Department came to the logical conclusion that tax cuts cause a loss of revenue. A 2006 Treasury Department study found that extending the Bush tax cuts would have no beneficial effect on the U.S. economy.
Other sources confirm that economic growth was fastest in years with relatively high top marginal tax rates.
The reality is that supply-side, trickle-down economics simply hasn't worked. Various economic studies have concluded that the revenue-maximizing top income tax rate is anywhere from 50% to 75%.
In 2009, the United States ranked 26th out of 28 OECD countries in total federal, state, and local taxes as a percent of GDP. Only Chile and Mexico had lower tax rates.
According to the Center on Budget and Policy Priorities, "federal taxes on middle-income Americans are near historic lows." For taxpayers in the top 1%, the tax burden has fallen dramatically in recent years.
At very high income levels, beginning at about the million dollar range, federal income tax actually becomes regressive. Effective tax rates level off at about 25%, and then go down from there. This is because all incomes over $388,000 are subject to the same 35% maximum. The $4 billion hedge fund manager pays no more, percentagewise, than the $400,000 doctor. In fact, even less. At the highest levels most of the income comes from capital gains, which are taxed at 15%.
How about corporations? Even worse. They paid only 12.1% in 2011, dramatically lower than the 25% average since 1987. According to U.S. Office of Management and Budget (OMB) figures, they're paying about a THIRD of the inflation-adjusted share of GDP paid by corporations in the 1960s.
Compared to foreign countries, U.S. corporations paid a smaller rate of income taxes than 24 of 25 OECD countries analyzed by the Office of Management and Budget and the Census Bureau.
Most stunning is the shift in taxpaying responsibility from corporations to workers over the years. For every dollar of workers' payroll tax paid in the 1950s, corporations paid three dollars. Now it's 22 cents.