A very disturbing and mostly ignored issue is how absence of skin in the game negatively impacts the political arena. It turns out that 45 percent of American households, nearly 78 million individuals, have no federal income tax obligation. That poses a serious political problem. Americans with no federal income tax obligation become natural constituencies for big-spending politicians. After all, if one doesn’t pay federal income taxes, what does he care about big spending? Also, if one doesn’t pay federal taxes, why should he be happy about a tax cut?
Whenever tax cuts are called for, it’s not long before they are called tax cuts for the rich. Let’s look at who pays what in federal income taxes. Using IRS data for 2015, the latest year available, the Tax Foundation reports that the top 1 percent of earners made about 21 percent of the nation’s income, but their share of federal income taxes was 39 percent. They paid more in income taxes than the bottom 90 percent, who paid 29.4 percent of federal income taxes.
In 2015, the top 50 percent of taxpayers paid 97.2 percent of all individual income taxes. Also, the top 1 percent had an income tax rate of 27 percent, while the bottom 50 percent had a tax rate of less than 4 percent. It turns out that 892,420 households — out of roughly 34 million total households — paid 39 percent of federal taxes that year. Most Americans have little or no federal income tax obligation, so how in the world is it possible to give a tax cut to them?
Another part of the Trump tax cuts was with corporate income — lowering the rate from 35 percent to 21 percent. That, too, has been condemned by the left as a tax cut for the rich. But corporations do not pay taxes. Why? Corporations are legal fictions. Only people pay taxes. If a tax is levied on a corporation, it will have one or more of the following responses in order to remain in business. It will raise the price of its product, lower its dividends to shareholders and/or lay off workers. Thus, only flesh-and-blood people pay taxes. We can think of corporations as tax collectors. Politicians love our ignorance about this. They suggest that corporations, not people, will be taxed.
Getting back to skin in the game, sometimes I wonder whether one should be allowed in the game if he doesn’t have any skin in it.
Writes for Creators Syndicate.
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