“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years. “
— Alexander Fraser Tytler, Lord Woodhouselee
The only way to solve the deficit problem is for Republicans and Democrats to reach a compromise over spending cuts and tax increases. That said, the President and his party seem to be resorting to the traditional class warfare tactics of the past to win votes.
As such, it is important to take a look at the numbers to get a sense of which constituencies currently bear the majority of the tax burden. To be fair, this analysis only looks at income taxes, so it leaves out much of the wealth that private equity barons made from dividends on carried interest payments, etc.. Nonetheless, the IRS data shows some interesting trends.
First, the top 1%, 5%, and 10% of tax filers have been assuming an increasing percentage of the United States’ overall income tax burden, while the tax burden of the bottom 50% has steadily declined. For instance, in 1986 the top 10% of income earners paid over 54% of income taxes. By 2008, that share increased by 15 percentage points to over 69%. In contrast, the bottom 50% of wage earners paid a little under 7% of income taxes in 1986. By 2008, that share decreased to under 3%.
The common rebuttal to the fact that the top 10% pays nearly 70% of income taxes is that the rich have become much richer in recent decades, while the poor have gotten poorer. The data seem to indicate this contention is indeed true. For instance, the top 10% of income earners accounted for 39.1% of the nation’s total reported income in 1986, but 47.6% of it in 2008. The bottom 50% accounted for 15.5% in 1986, but 12.5% in 2008.
However, while the bottom 50%’s share of the income tax burden declined by 3.8 percentage points, its share of income only declined by 3 percentage points. In contrast, the top 10%’s share of the income taxes increased by 15 percentage points, while its share of income only increased by 8.4 percentage points.
To be fair, tax rates for top earners have come down from historical levels, and a tax increase of some sort will be necessary for the country to resolve its budgetary problems. A simplification of the tax code that both reduces rates and increases revenue would even be better.
That said, when a decreasing number of individuals fund the lion’s share of services for a growing population of people who provide very little to the treasury, government creates a ravenous beast that becomes increasingly very difficult to feed.
Soon (if not now), a situation will exist, in which the majority of the population can vote for programs that they share no burden in funding. Once a majority of the population learns that it can vote itself funds from the public treasury, the collapse of the system as we know it is sure to follow.