In my last article, “The Fiscal Cliff Is Closer Than You Think“, I pointed to reliable facts that show that successful US citizens are leaving the USA in record and growing numbers. I also asked you to look at those facts and then do the math.
That’s one of my favorite phrases… “Do the math.”
The reason why I use that phrase so much is because there are so many politicians, pundits, and legacy media types who throw out all kinds of wild statements, hoping that folks won’t stop to consider what it really means and that they won’t actually do the math.
So today, I would like to delve a little more into the math behind what’s happening with this flight of successful Americans.
To begin with, let’s look at the latest IRS Collections Data. This is data published every year by the IRS, about 18 months after the close of the related tax year. The latest such data available is for the 2009 tax year. (The 2010 data is very late coming out this year.)
|2009 IRS Collections Data (source IRS)|
* The Top 400 data is drawn from a related IRS PDF document.
The first thing that I would like to point out is that, contrary to what the Democrats and the legacy media would have us believe, the rich not only pay taxes, but they pay far more than their share, based on income. The top 1% earned 16.93% of all US personal income in 2009, but they paid 36.73% of all personal income taxes that were actually collected. That’s after all tax breaks, deductions, exclusions, and even any possible cheating. It’s what was collected by the IRS. That’s 2.2 times their share, based on income.
The top 400 taxpayers have it only slightly better. Since there are roughly 400 billionaires in the USA, that’s generally who these people are. They earned 1.31% of all US personal income, but paid 1.9% of all personal income tax collected. That’s about 1.5 times their share, based on income. This also shows that far from being the rule, it is the exception to the rule for billionaires to pay less tax than their secretaries. That’s only the case if the secretary is in the top 5% of income earners, as is almost certainly the case with Warren Buffet’s secretary, based upon her stated tax rate.
So what has all this to do with successful US citizens moving their citizenship offshore? Well, let’s do the math.
We know from the previously mentioned article that Zogby reported that more than 3 million US citizens are leaving the USA every year and that a little more than half of them will never return, either by intent or circumstance. That’s more than 1.5 million expats a year. We also know that very few of those people will be poor. In fact, those who have the greatest motivation to move offshore are those with the most income. It’s the rich who are being demonized for their hard work and success. It’s the rich who are paying the lion’s share of US taxes and who are being told that it’s not enough. And it’s by and large the rich who are leaving.
So what happens if the rich leave?
Consider how many people are leaving every year, and then look at how many taxpayers comprise the top 1% of income earners in the above chart. You don’t even have to do any math to see that with 1.5 million Americans leaving every year, we could conceivably lose all of the 1.38 million taxpayers who comprise the top 1% in only one year. But more realistically, that 1.5 million who are fleeing is likely spread across the top 10% – the 13.8 million taxpayers who earn more than $112,124 per year. But let’s go a step further and assume that an unlikely 10% of those who are leaving are poor. That drops the 1.5 million down to 1.35 million. But even so, it would still only take about 10 years to lose all of the top 10% (13.8 million / 1.35 million).
But it wouldn’t take all of the top 10% leaving to have a devastating effect on our economy. If only half of the top 10% were to leave, the result would be catastrophic. Again, let’s do the math.
From the IRS data above, we know that the top 10% pays 70% of all federal personal income taxes collected in the USA. So losing half of them would mean losing 35% (half of 70%) of our tax base. They say a picture is worth a thousand words, so look at this picture.
If just half of the top 10% of taxpayers who pay 70% of all federal personal income tax were to leave, it would mean that everyone who remained would have to pay more than 50% in additional taxes (35% / (100%-35%) = 53.8% tax increase), just to make up for that lost 6.5 million taxpayers, whom we could easily lose in less than 5 years.
Then consider that, as we learned in the previously mentioned article, the number of expats leaving the USA is not remaining stable but is increasing at a phenomenal rate. In other words, we could easily see this scenario play out well before Obama leaves office if we don’t quit punishing success.
There is a truism that states: “If you want more of a thing, you reward that thing. If you want less of a thing, you punish that thing.”
Obama’s agenda of punishing the thing that we need most, instead of rewarding it, is not going to produce any more revenue for the federal government. In fact, it will produce less revenue. By effectively punishing success and rewarding sloth, he is insuring that we will have less success and more sloth. That’s not to say that there will actually be less success. It just means that there will be less success in the USA. Successful people aren’t going to just stop being successful because Obama doesn’t like success. They will just continue to take their success and associated jobs to other, more success-friendly nations.
Not only do we lose a disproportionately large portion of our tax base when that happens, but we lose most of the jobs that those successful people had created in the USA before becoming expats. If they are responsible for 35% of the taxes, then it’s reasonable to assume that they are responsible for a similar percentage of US jobs. But to be really conservative in our calculations, let’s cut that number in half to 17.5% and do the math one more time.
- If we lose just half of the top 10%, who pay 70% of the taxes, it means that we lose 35% of our personal income tax base.
- That would result in a 53.8% tax increase for those who remain.
- If, as we concluded, the half of that top 10% are who are leaving are responsible for 17.5% of jobs, then we’re looking at a 17.5% loss in US jobs.
- That means that the remaining 82.5% of workers who still have a job would have to pick up not only the additional 50% tax increase to cover those successful expats, but all the taxes that used to be paid by the 17.5% who can no longer find work.
- However, since half of Americans don’t pay any tax to begin with, it means that all of that lost tax revenue would have to be made up by just 41% of Americans – most of them earning less than $100,000 a year.
Under such conditions, we would have passed the point of no return. Our remaining income base would not be enough to pay down the debt, even if we raised taxes to 90% for everyone who remained and cut spending by 90% across the board.
As you can see, “Soak the Rich” completely falls apart when you look at its unintended consequences and do the math. Rather than punishing success and driving more successful people away, we should be creating incentives to reward successful people from other countries for coming here, doing business here, creating jobs here, and paying taxes here (and reward our own successful people for remaining here.)
Obama’s “Soak the Rich” agenda threatens to be more devastating to our economy than anything else he could do. After all, how could we possibly pay off the federal debt if we lose 30%, 40%, 50%, or more of our tax base?
John Gaver is the author of “The Rich Don’t Pay Tax! …Or Do They?“ To learn more about this flight of wealth from our shores and what can be done to easily reverse it, read this Amazon 5-star rated book, which is available in print, Kindle, and Nook formats. http://TheRichDontPayTax.com/
Follow John Gaver on Twitter at https://twitter.com/OrigIntent
Photo credit: terrellaftermath
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