Knifonomics (part 26): Paying your way

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The Knife is a top rate taxpayer, just.

I get less from the state than I put in, probably, but I can live with that, just.

There’s no doubt though , that tax is a colossal burden, and the idea that “rich” people are getting away without paying it is pathetically misguided. It is, of course, the main plank of Obama’s successful re-election campaign, insofar as he had any coherent economic policy. It’s probably Mili-E’s main policy too, here in the UK.

Look at the existing US data (great article, by the way):

To pay for all this largesse, the federal leviathan borrows money, as Obama has done to the tune of over $5 trillion. But it also redistributes income through the most progressive tax system among advanced economies. In 2009, the bottom 20% of taxpayers earned approximately 5% of the nation’s income but paid just 0.3 percent of all federal taxes. Households in the middle 20%, which earned almost 14.7% of national income, paid only 9.4% of federal taxes. Americans in the top 20%, earned 51% of the nation’s income, but paid 67.9% of all federal taxes. As for the evil 1%, they earned 13.4% of all income and paid 28.9% of all federal taxes. As a result, nearly half of all taxpayers contribute next to nothing to the costs of funding the government’s entitlements.

Another way to see how the tax system redistributes wealth, consider how much each group receives in federal spending compared to how much they pay. According to the Tax Foundation, households in the lowest 20% of income received roughly $8.21 in federal, state and local government spending for every dollar of taxes paid in 2004, households in the middle 20% received $1.30, and households in the top 20% received $0.41. In other words, tax payments exceeded government spending for the top 40%, meaning there was a net fiscal transfer of between $1.031 trillion and $1.527 trillion from one group of taxpayers to another. If this isn’t income redistribution from the “rich” to the “poor,” nothing is.

We’re very similar on this side of the Atlantic, in fact worse.

Painful, especially when you consider that income tax was introduced as a temporary levy to pay for wars, and only really took off in the last 100 years (see Allister Heath’s superb summary). This won’t change as long as the Lib Dems are anywhere near power.

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