This column provides a set of facts which seem to be indisputable. They are presented in no particular order. Analysis and conclusions are up to the reader.
The Congressional Budget Office (CBO) divides ten of the largest “tax expenditures” in the individual income tax system into four categories: 1) Exclusions from taxable income for employer-sponsored health insurance, pension contributions and earnings, capital gains on assets transferred at death, and Social Security and Railroad Retirement benefits; 2) Itemized deductions for state and local taxes, mortgage interest, and charitable contributions; 3) Preferential tax rates on investment income (capital gains and dividends); 4) Tax credits for earned income and children. According to the Associated Press summary of the CBO study “The top 1 percent of earners reaps 17 percent of these tax breaks.”
Maine instituted its Income Tax in 1969. In the beginning incomes between $2,000 and $5,000 were taxed at a 2 percent marginal rate, while those over $50,000 paid 6 percent on every additional dollar. A 1969 income of $3,100 dollars was taxed at 8.5 percent because it had been inflated to $19,000. An income of $50,000 in 1969 would grow to $290,476 by 2009 and pay 8.5 percent, the same maximum on every additional dollar as the $19,000 income.
“Bracket creep,” not legislation produced this steady increase in taxes. Inflation works on a “progressive” income tax system to produce these increases. As the dollar depreciates due to inflation the taxpayer must earn more to have the same purchasing power. As he earns more depreciated dollars he moves from bracket to bracket, from 3 percent, to 4 percent and on up, paying a higher and higher rate.
Automatically indexing the tax rate to inflation corrects this process. In 1982 Charlie Craigin promoted and helped pass a referendum designed to index Maine’s tax rates to inflation, ending bracket creep. The legislature almost immediately overturned the referendum and bracket creep resumed.
It’s possible that our legislators preferred a steady mechanical increase in revenues without risking unpopularity by openly voting for higher taxes. But who can say for sure? None have ever admitted they prefer to avoid excessive transparency.
In the 1920s Presidents Harding and Coolidge enacted drastic cuts on the rich. The percentage of income tax revenues paid by those with incomes over $50,000 rose from 44.2 percent of the total in 1921 to 78.4 percent in 1928. The rate went down. The rich paid more.
President Kennedy cuts of the highest income rates was followed by an increase in the percentage of total income tax revenues paid by those with incomes over $50,000 to rise from 11.6 percent of the total to 15.1 percent in 1968. The rich paid more.
The 1980s Reagan tax cuts caused the percentage of income tax revenues paid by the top 10 percent of earners to rise from 48 percent of the total in 1981 to 57.2 percent in 1988. The rich paid more.
In 2009 Boston College’s Center on Wealth and Philanthropy produced a study showing that more than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents decided that the time had come for redistribution of wealth. They redistributed their wealth to states with lower tax rates.
In 1913 the top marginal income tax bracket was 7 percent. Now it is 39.6 percent.
In 1913 the marginal income tax bracket range was 1 percent – 7 percent. Now the range is 10 percent – 39.6 percent.
In 1913 there were 400 pages in the tax code. Now there are 74,608 pages in the code.
Over the past few years the Congressional Budget Office reported that:
(1) The top one percent of US wage-earners make less than one-fifth of the total income in the United States, yet pay close to 40 percent of all federal income taxes, and more than one-quarter of all federal taxes.
(2) The top 20 percent of US wage-earners make just over half of total US income and pay close to 90 percent of all federal income taxes, and approximately 70 percent of the total federal tax bill.
John Frary of Farmington is a former candidate for U.S. Congress, a retired history professor, an Emeritus Board Member of Maine Taxpayers United, a Maine Citizen’s Coalition Board member, and publisher of FraryHomeCompanion.com. He can be reached at jfrary8070@aol.com.
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