Kamala Harris echoes big Democrat lie on ‘tax fairness’

By Mike Rosen

It’s an election year and Democrats are, as usual, outbidding Republicans with unlimited giveaways to the masses. How will they finance this when the national debt already tops $35 trillion and federal spending is projected to exceed revenues by $2 trillion this fiscal year? By “soaking the rich,” of course. On the campaign trail Kamala Harris and Tim Waltz repeatedly recite the Democrat mantra, “the rich don’t pay their fair share of the taxes,” but never say what that fair share is.

The Statistics on Income Division of the Internal Revenue Service issues a report, Publication 1304, each year on who makes what and who pays what in federal income taxes. Its most recent report was issued in April 2024 based on individual income tax returns for 2021. The results are displayed in Figure 1.

Of total individual income taxes on 153 million tax returns filed in 2021, the top 1% numbered 1.5 million filers whose adjusted gross income (AGI) exceeded $662,577. That group earned 26.3% of all national income and paid fully 45.8% of all income taxes. The top 5%, 7.6 million filers with AGI above $252,840, earned 42% of all national income and paid 65.6% of all income taxes. Those in the bottom 50%, 76 million filers whose AGI is below $46,637, paid only 2.3% of all national income taxes. (Incidentally, those in the bottom 47% paid 0%.) When you view all the groupings displayed, make your own judgment about “fairness.”

Figure 1: 2021 income versus tax share. Click to enlarge

The top 1%, of course, includes Elon Musk and other captains of industry, but the entry level of only $662,000 leaves ample room for mere millionaires like entertainers, actors, pro athletes, media personalities, lawyers, politicians, etc.

This IRS report appropriately isolates income taxes. Democrats like to confuse the issue by lumping income taxes together with Social Security and Medicare payroll taxes. But payroll taxpayers specifically derive the benefits of those programs. Income taxes are directed at everyone and everything else in general. And income tax rates directly affect incentives and disincentives for work and investment. The reason Social Security taxes are capped above a certain income level is not as a favor to the rich, but because their benefits are similarly capped. (Moreover, Social Security is a lousy mandatory investment for upper-income taxpayers given their alternatives.)

Tax rate cuts don’t necessarily lead to reductions in tax revenues. In 1981, when the top marginal tax rate was 70%, the top one percent’s share of the national income tax burden was 17%. Ronald Reagan’s tax rate cuts for all stimulated an economic boom that increased total tax revenues. When the top marginal rate was lowered to 28%, it led the rich to abandon less profitable tax-sheltered investments and expose more of their income to taxation of more profitable ventures, with a consequent increase in their share of the national income tax burden. In the 1990s, Bill Clinton’s capital gains tax rate cut also produced higher revenues. George W. Bush’s and Donald Trump’s tax rate cuts for every one had the same effect. Thanks to a marginal tax rate (which is now 37%), much lower than to 70% rate in 1981, the top one percent’s share of the national income tax burden has continued to grow from 17% in 1981 to 45.8% in 2021 (see Figure 2).

Figure 2: Income tax burden 1981-21. Click to enlarge

The same dynamic explains why retail stores lower their prices as an incentive to shoppers in big holiday sales. The increased volume leads to higher profits. In a market economy incentives matter, a concept progressive Democrats just don’t get.

Kamala Harris has proposed a tax on “unrealized capital gains,” the latest socialist brainstorm. For example, if you invest $50,000 to buy 1,000 shares of a stock at $50 a share and it goes to $100, your holdings are now worth $100,000 including the capital gain of $50,000. At year-end, you’d be taxed on that $50,000 capital gain even though you haven’t sold the stock nor received any proceeds. If the price drops back to $50 the next year, you’d be poorer than you started.

This tax can be expanded to “unrealized increases” in the value of your home, gold, unimproved land, artwork on your walls, and your Mickey Mantle rookie baseball card. Socialism has no limits. This is absurd.

Kamala and her fellow socialist Democrats are itching for a wealth tax. On your annual income tax forms you’d also be required to detail your wealth and net worth. IRS will add another 50,000 agents to audit everyone. Then they’d take a percentage of your life savings each year until it’s gone or you’re dead. It’s fairer that way, isn’t it?