Let's Get It Right About Tax Burden And 'Fair Share'

Recent data on taxes should put to rest all the false rhetoric that is fueling class warfare in this country and unfairly targeting independent businesses.

First, let's talk about the argument that taxes should rise to ensure that the richest Americans are paying their so-called fair share. According to the latest data, released Wednesday by the Tax Foundation, the top 50 percent of taxpayers pay 97 percent of all income taxes. That's right, just half the country pays just about all the taxes, to the tune of just over $1 trillion dollars.

It gets worse as you go up the income ladder. The top 5 percent pay 57 percent of all taxes, while the top 1 percent pay 35 percent.

Related: Why American Affluence Should Be Celebrated, Not Condemned

What do those numbers tell you? They tell you that, if there is an unfairness in how taxes are distributed, it is that the rich carry most of the burden. Does that mean we should tax the poor? Of course not. But, if policymakers insist on continuing to raise taxes on the highest earners only, they are unfairly targeting the one group that they've relied on for their revenue all along.

Second, there is the argument that the very rich continue to get richer, while the rest of the country gets poorer.

According to the latest data from the IRS, crunched by the Tax Foundation, incomes for all groups -- except for the richest – rose. The economy in 2011 added about 1.6 million new tax filers. Incomes and taxes paid rose for every income group, except for the very wealthiest, defined as those making above $1.7 million a year.

So, everyone, except the wealthiest, saw incomes rise. People are getting richer, and the richest are essentially staying flat. That bodes well for people worried about growing income inequality. To use a cliché, this rising tide is lifting all boats.

These numbers are especially important for independent business owners. Many file pass-through taxes as partnerships, sole proprietorships and limited liability companies. As a result, the income they file on their tax returns looks like they are rolling in money, when in fact those profits belong to the business itself.

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Rather than “fair share,” many of these types of businesses pay an inordinate tax rate. A study this summer by Quantria Strategies LLC showed these kinds of companies  – which form the bedrock of American independent business – now pay a top marginal tax rate of 44.7 percent, well above the 35 percent that applies to standard corporations.

What is most frustrating is the constant, negative drumbeat we hear about wealth creation in this nation. For some reason, there are certain quarters that demonize people who have become – or are becoming – successful. Rising income should be celebrated. It's what we all want, for everyone, no matter where they sit currently on the economic scale. It is why we work hard, why we innovate, why we sometimes quit our jobs to turn our concepts into corporations.

Instead, though, we hear about how the rich need to do more, how companies need to pay more, and how wealth should somehow be redistributed, in the interest of fairness.

Wrong. Wealth should be supported at all levels, from the minimum-wage worker who can rise to a better-paying job to the CEO who makes that happen by reinvesting his profits into growing his business so that it can create opportunities for its own employees. That doesn't happen without the accumulation of profit and wealth. Taxing that more only gives employers less money to reinvest.

The good news is that rising incomes mean business must be getting better, despite uncertainty many continue to feel about the impact of the ongoing rollout of Obamacare. The bad news is that the government continues to exact its pound of flesh, and is taking more. For example, according to the Tax Foundation, the average tax rate for the top 50 percent of filers rose from 13.05 percent to 13.76 percent.

The wealthiest individuals and many independent companies in this country continue to pay the lion's share of taxes. The numbers don't lie. That's why policymakers who want to spur economic growth would be better served by easing that burden to help stimulate growth and increase profitability that can be shared across our economic spectrum. An independent business with higher profits can invest in technology and hire workers. That creates jobs, not government programs paid for by businesses and individuals already over-taxed that have thus far failed to move our economic needle.

Related: Why Tech Valuations Can't Be Too High or Too Low
 

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