1. Poor Americans don’t pay any taxes.
FALSE. Even though millions of the poor do not make enough to owe income taxes, they still pay plenty of other taxes, including federal payroll taxes, gas taxes, sales taxes, utility taxes and other taxes. When it comes to state and local taxes, the poor bear a heavier burden than the rich in every state except Vermont, according to the Institute on Taxation and Economic Policy.
2. The wealthiest Americans carry most of the burden.
FALSE. It is true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government. Social Security, Medicare and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That’s because, once you reach $106,800 of income, you pay no more for Social Security. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800. The Internal Revenue Service issues an annual report on the 400 highest income-tax payers. Despite skyrocketing incomes, their tax burden has been slashed. The actual share of income paid in taxes by the richest 400 Americans is only 16.6 percent. Compare that to the vast majority of Americans whose share of income going to federal taxes has jumped from 13 percent in 1961 to 23 percent in 2007.
3. Corporations are investing in America.*
FALSE. At this very moment, America’s corporations are sitting on close to $2 trillion in cash that is not being used to build factories, create jobs or anything else. Instead, that money acts as an insurance policy for managers unwilling to take the risk of actually building the businesses they are paid so well to run. Corporate profits in 2008 alone were $1.8 trillion--up 12% from 2000. And yet corporate income-tax revenues, during the last decade, actually declined by more than 23 percent.
4. A rising tide lifts all boats.*
NOT LATELY IT HASN'T. When Reagan was elected president, the top marginal tax rate was 70 percent. He cut it to 50 percent and then to 28 percent starting in 1987. It was raised by George Bush (senior) and Clinton, and then cut by George W. Bush. The top rate is now 35 percent. Since 1980, the average income of bottom 90 percent of Americans—has increased by 1 percent. In other words, for each dollar the bottom 90% of Americans made in 1980, their 2008 income was up by one penny. On the other hand, the average income of America’s top 1% more than doubled. And the super rich (the top one-tenth of 1 percent) saw their income quadruple during that same period. Today, the top 300,000 Americans now enjoy almost as much income as the bottom 150 million.
"The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show."
---Professor David Cay Johnston
Syracuse University and columnist for Tax.com
*Both of the charts (above) were prepared by Professor David Cay Johnston from information provided by the IRS.