Bernie Lie #5,354 | The rich pay a lower tax rate than the poor - Fact Check: False

Bernie Sanders is the king of manipulated statistics. He always has been, and he's only getting better at it.


Yesterday this tweet came from @BernieSanders-


You can check the article Bernie was pointing to for this claim here. The article itself debunks its own title, of course, at the end of the article:


On the question of tax burden, Jason Furman, an economics professor at Harvard who chaired the White House Council of Economic Advisers under President Barack Obama, noted that Saez and Zucman did not include refundable tax credits, such as the earned-income tax credit (EITC), in their analysis.
The credit, which is intended to encourage low-income families to work, “is part of the tax code,” Furman said. A person who paid $1,000 in federal income taxes and then received a $1,500 credit would have a total federal tax burden of -$500, but Furman said that under Saez and Zucman’s analysis, that person would instead show a burden of $0. That result would make total tax burdens at the lower end of the income spectrum appear higher than they are.

On its face, it looks to be true. It even sounds true, worded in a perfect manner that would make the best tricksters envious. What's playing in its favor is that people want it to be true. It is however, very false.


Let's look at the numbers.


Yes, it is true that at the end of the year, the tax rate imposed on lower income individuals is lower than the "effective tax rate" on the wealthiest in the nation. The details are very different when you look at the actual paid income tax rate by each income category.



The effective tax rate on the bottom 50% may be around 24%, but that isn't even close to what they end up paying. Why? Because of things like the "Earned Income Tax Credit." That 24% simply does not take into account the fact that most people in the bottom 50% get back all the money they "paid" in taxes, and then some.



As you can see from the chart above, the actual tax rate paid by the top 1% is around 23%. But, as you can also see in the chart above, the actual tax rate paid by the bottom 50% is not the 24% figure spouted by B.S. It's not even 10%, or 5%. That's right, at the end of the year when all the Tax Credits are settled, the bottom 50% actually end up paying between 3-4% of their income in taxes.


What's the message Bernie's trying to get across?


The message goes something like this: "The wealthy in America are not paying their fair share. In fact, working class families are paying a higher tax on their income than even Bill Gates. This is an unfair system. What we must do is raise income taxes on the wealthy, as well as raise the capital gains tax."


If the message is that the rich are paying a lower tax rate at the end of the year than the bottom 50% of income earners, than that message is a flat out lie. That's not surprising coming from Bernie. Maybe that's why there's a website called BernieLies.com?


How do the rich get such a low tax rate?


That question is pretty simple to answer. The "rich" do not make most of their income from salaries or wages, such as is the case for most other Americans. They make the bulk of their income from Capital Gains. In fact, if you are in the top 1%, over half of your earning are from investments.


The top income tax rate is 38%, but honestly that doesn't matter. Even when the top rate was 90% in the 50's, the effective tax rate was still only 42%.


Even taking the income taxes into account, you are still only getting part of the information. This doesn't include the amount the rich pay in corporate taxes on their businesses, property taxes on their houses, sales taxes on their higher spending, as well as another slew of hidden taxes on your income- all of which will equal higher numbers than those paid by the bottom 50%.


But if we raise their tax rates, won't we make more money?


You would think that a simple tweak of the tax rates and you'd be taking in more money from the rich. I'd ask you to consider the chart below showing the percentage of tax burden starting when the tax rate was at 90% and continuing to where it is now.



Why not just raise the Capital Gains tax?


I mentioned before that a large portion of the 1%'s income is actually from investments. Much more so than the percentage for the bottom 50%. See the chart below showing the percentage of income from Investments vs. Wages for each income bracket.


The underlying message from Bernie is going to include a plea for higher capital gains taxes. But what are capital gains, and why would you want to tax them?


Capital Gains are pretty straightforward. It's the profit made off of an investment. We have to first remember this age-old rule: What you tax, you get less of. So you'd have to answer this question: Would it benefit society for us to have less investments? Probably not. Investments are what grow the economy, foster innovation, and as a result, create more jobs.


In all reality, the capital gains tax needs to be axed, but I doubt that will happen. President Trump has considered altering the Capital Gains tax to take inflation into account. This is a genius step in the right direction. One even proposed by Thomas Sowell in his book , Basic Economics.


When you invest $100 into the market, and at the end of the year your account equals $103, it would seem like you made $3. The capital gains tax would have you tax that $3 profit at 15%. BUT- What did you make if there was 3% inflation that year? You'd have $103, but it would be worth exactly what your $100 was worth just a year ago. That means that you didn't profit $3, you profited $0. The capital gains tax would take 15% of the $3 gain, or $.45. That means that your account would now equal $102.55. If there was 3% inflation, you actually lost $.45 on the year. Trump's plan would have the tax taking inflation into consideration, as it should.


So what share of taxes are paid by the 1%


Remember the initial assertion made by Bernie. His assertion is that the wealthy are not contributing what they should be. The working-class families are the ones footing the tax bill, or at least they or both contributing the same.


Let's look at the portion of taxes paid by the 1% --




If the richest 1% are already accounting for almost all of the taxes, how can you make the assertion that they aren't paying their fair share?


Don't forget the math.


The top 1% earn a lot of money, that goes without saying. But what is the underlying assertion, and the solution proposed by Bernie Sanders? Tha't to raise their taxes. He'd have you believe that raising their tax rate is enough to pay for any of the plans he's put forward. Regardless of the issue, all we need to do to solve it is to tax the rich.



So how much total income do "the rich" make every year? About $1.6 trillion. Now that's a lot, don't get me wrong, but it isn't close to enough to fund even one of Bernie's proposals. As a reference, that would run the US government for 4 months if taxed at 100%. We spend that much just on medicare in 3 years, and realistically, it would barely be enough to cover just the interest on the debt 10 years from now, which is projected to reach $800 billion by 2025, ballooning quickly from there.


The lesson to be learned is this: You have to earn what you get. There isn't enough money in the US to fund Bernie's proposals, and that total number is likely to drop if higher taxes are implemented, hampering the rich's ability to earn money. No matter how you slice it, the math just doesn't add up.

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