Why Wealth Concentration Doesn't Match Tax Burden

Being a SEOer at Google, it is essential to delve into the nuances of how wealth and income are taxed in the United States. Despite the top 1% of income earners making up about 20% of the income and paying around 40% of the income taxes, a critical question arises: why don't those who own 90% of the wealth pay 90% of the taxes?

Understanding Taxation

A fundamental understanding of what is taxed and what is allowed by the Constitution is crucial. The U.S. Constitution, in Article I, Section 8, Clause 1, states that federal taxes shall be uniform throughout the United States. This means that ideally, those who own 90% of the wealth should contribute 90% to the tax burden. However, the current tax system does not align with this principle.

The primary issue is the flaw in the current tax system, which focuses on income rather than wealth. Income is taxed based on when it is earned, not its source. While the top 1% of income earners contribute significantly to the tax revenue, the wealthiest 10% of the population own far more wealth than they earn in income. Therefore, while these individuals pay a substantial portion of the income tax, their overall tax contribution is lower than one might expect.

Constitutional Limitations

According to the U.S. Constitution, federal taxes must be uniform throughout the United States. If those who own 90% of the wealth should pay 90% of the taxes, it logically follows that the same rate must apply to the other 10% of wealth owners. Asking someone to be taxed 90% on the value of their car, lawn mower, or other personal assets year after year is an unrealistic and impractical approach.

Moreover, the concept of a uniform tax rate must also be considered in the context of wealth. Wealth taxes would apply to the total value of assets, not just income. This would ensure that the wealthiest individuals contribute significantly more to the overall tax burden without penalizing others who might have modest income but significant savings.

Political and Economic Loopholes

There are several strategic reasons why those with significant wealth might avoid a higher burden of taxation. First, political contributions can influence tax policies. The wealthy often contribute large sums to political campaigns, which can sway legislation in their favor. This emotional and legal manipulation has led to a tax system that is perpetually skewed towards those who can afford the most expensive lobbyists.

Second, those who own 90% of the wealth are often influential in the political sphere. They have the ability to sway their peers and lawmakers. By paying a lower tax rate, they effectively shift the burden onto others, ensuring that they maintain their wealth and influence.

Third, tax laws often allow individuals to control when and how they receive taxable income. Whether it's through retirement plans, brokerage accounts, or other investment vehicles, it is possible to defer or manage tax obligations. Thus, the actual tax burden is often spread out over time, allowing individuals to avoid a single, large tax bill.

Insufficient Taxation and Wealth Inequality

It is noteworthy that the top 20% of earners in the U.S. pay an astonishing 87% of the taxes. This underlines the inequity in the current tax system. While 87% might seem high, it is not nearly enough to address the vast wealth inequality in the United States. The wealthiest individuals often find loopholes to minimize their tax contributions, further widening the gap between the wealthy and the middle and lower classes.

Moreover, as mentioned by the author, the current tax system is designed to be a progressive one. The wealthy can defer their taxes and pay when the time is most convenient, while the middle and lower classes are subject to higher immediate tax rates on their income. This further exacerbates the issue of wealth concentration not matching the tax burden.

Real-World Implications

Despite the theoretical and practical arguments against the current tax system, it is crucial to acknowledge that the current reality is far from ideal. Wealthy individuals do not face the same tax scrutiny that the middle and lower classes do. This discrepancy highlights the need for a more equitable and transparent tax system that ensures the wealthiest individuals contribute their fair share.

Edward Snowden’s statement about “You can’t shoot me for looking at you the wrong way” reflects a broader issue of governmental tolerance and acceptance of wealth disparity. In a real world where wealth and power are deeply intertwined, significant reform is necessary to address the pressing issues of wealth concentration and inadequate taxation.