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Politicians have just a few days remaining to come up with some resolution to the fiscal cliff facing the country. It appears the resolution will be another "can kick" that mostly increases taxes. The President's income break point is often stated to by $250,000 while House Speaker John Boehner's Plan B had higher taxes for those with incomes above $1 million. The problem with focusing only on increasing taxes and generating more revenue is the fact that the expense side of the budget needs to be dealt with as well. The revenue generated from the higher proposed tax rates would only fund the government for eight days. As the below chart shows, expenses have spiked significantly subsequent to the recession with a deficit that remains alarmingly high at over $1 trillion per year.

From The Blog of HORAN Capital Advisors

Mark Perry, Professor of Economics at the University of Michigan, recently analyzed IRS data available through 2010 for taxpayers in the top 1% versus those in the bottom 95%. Taxpayers with income above $221,000 would fall in the top 1% of income earners in 2010. What his analysis of the data shows is:

  • "the 1.35 million taxpayers that represent the highest-earning one percent of the Americans who filed federal income tax returns in 2010 earned 18.9% of the total gross income and paid 37.4% of all federal income taxes paid in that year."
  • "the 128.3 million taxpayers in the bottom 95% of all U.S. taxpayers in 2010 earned 66.2% of gross income and that group paid 40.9% of all taxes paid."
  • "in other words, the top 1 percent (1.35 million) of American taxpayers paid almost as much federal income tax in 2010 ($354.8 billion) as the entire bottom 95% of American tax filers ($388.4 billion)."
  • "about half (58 million) of the bottom 95% of American "taxpayers" paid nothing or got a tax refund."

The below chart, which appears in his article, details the the increasing share of taxes paid by the top 1% of taxpayers since 1980.

From The Blog of HORAN Capital Advisors

Broadening the base of taxpayers, even at a minimal level, would get more of the population in tune to the budget consequences facing the U.S. The below chart displays a ten year time period, but the same holds true going back to the 1980's, noting there has note been a single year since the 80's where the government actually cut spending. That is, the absolute dollar level of spending never declined. The spending side of the government's ledger is as large of an issue as is the revenue side.

From The Blog of HORAN Capital Advisors
Source: A Look At The Top 1% Of Taxpayers, Government Revenues/Expenses And The Deficit