Many Americans believe that the top one percent of those who earn income in the U.S. don’t pay their fair share of taxes. A recent report from Congress’s Joint Committee on Taxation says that the top 1 % of taxpayers pay 49% of all taxes. Some members of the one percent, notably Warren Buffett, think that group should pay more taxes. The report and the issues it raises are discussed by tax attorney Rob Wood in this commentary on his Forbes article “Warren Buffett To Al Sharpton, The 1% Makes 19% Of All Income, Pays 49% Of All Taxes.”
Wood suggests that it is unusual to hear Warren Buffett and Al Sharpton mentioned in the same sentence. There are many strong views on taxes across the income spectrum. The only common view seems to be that everyone would like to pay less.
Overall amounts of tax paid are a different issue from percentage of income paid as taxes. The percentage of their income that the highest earners pay has gone down from about 30% of adjusted gross income in 1995 to about 17% in 2012. Wood says that the explanation is changes in the tax laws. One part of this is the tax rate on investment income, an area that provides Mr. Buffett with most of his income. Investment income is taxed at a lower rate than salaries and wages. Wood also notes that people discussing taxes often ignore payroll taxes, and omitting those figures will skew the results.
Mr. Buffett has commented that he pays about 14% on his income while his secretary pays about 35% and that this should be changed. Wood says that a change like this would be very possible and beneficial, as the current tax burden falls hardest on the middle class. In order to change the tax burden it would be necessary to make some drastic changes in the tax system, and that is a political issue that politicians have stayed away from.
On the subject of tax reform, Wood notes that Mark Everson, the IRS Commissioner during George W. Bush’s administration, has announced he is running for president. Everson has suggested that perhaps 160,000,000 people should come off the tax rolls and that the country should move to a consumption tax. That’s unlikely to happen, but it is one approach that is possible. Wood suggests that any fundamental tax reform probably needs the attention of economists to provide some suggestions on the very complex topic of rebuilding the tax code.
Wood compares the current tax system to a building that has been modified and added to over the years to the extent that the building is ugly and badly built. Wood says that it is time to start over with a new tax code.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.