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Where is the money coming from, Mr. President?

September 22nd, 2011

This past week as you may know, President Obama proposed a deficit reduction plan. He made it clear that to cover the sky-rocketing deficit, he is going to raise the taxes of high income Americans by letting the Bush-era tax cuts expire.

“It is wrong that in the United States of America a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million,” Obama said Monday during a speech at the White House – a more than reasonable proposal.

But is that really the case? Do higher-income Americans pay lower rates than lower-income Americans?

A study by the Congressional Budget Office begs to differ. In 2007, households in the lowest fifth of income paid 4.7 percent of their total income in taxes. The second fifth paid 10.8 percent, the third, 14.8 percent, the fourth, 18.3 percent, and the fifth, 26.8 percent.

According to this study, higher-income Americans pay a much higher rate than lower-income Americans.

Another report by Tax Policy Center, a non-partisan, private research firm in Washington, D.C., points out that 46.9 percent of Americans in 2009 had a zero or negative individual income tax liability, which – in lay man’s terms – means  that 46.9 percent don’t pay any sort of income tax, or are liable for so many deductions that cancel out any net gain from the income tax.

1.5 percent of households making over $1 million did fall under this category.

So, yes, there are a few high-income Americans who some how do not pay income taxes.

But that 1.5 percent looks a whole lot less of a problem juxtaposed to the fact that 58.3 percent of Americans making less than $75,000 don’t contribute to the income tax fund.

“I reject the idea that asking a hedge-fund manager to pay the same tax-rate as a plumber is class warfare,” Obama said on Monday. “This is not class warfare. This is math. The money has to come from somewhere.”

So where is the money coming from Mr. President? There’s a 1.5 percent chance that a hedge fund manager making more than $1 million a year is paying less than a plumber making $35,000, assuming that plumber isn’t in the 47.5 percent of Americans making between $30,000 and $40,000 that don’t pay taxes.

Ideally, should everyone be paying the same tax rate? I think everyone agrees that the poor should not pay higher than the rich, and a few believe the rich should pay higher rates than the poor.

Does this deficit reduction plan bode for a bigger debate than deflating the deficit?

Is Obama’s statement purely political and aimed at getting him re-elected for 2012?

Should rich Americans share a larger percentage of the load than their lower-income countrymen? Maybe, maybe not, but the money has to come from somwhere.