discuss about why high-income taxpayers should pay less than present level
Tax Revenue, Tax Evasion and High-income Taxpayers
Since being enacted in 1913, the tax code has been constantlychanging with rates on personal income ranging from less than 5 percent to more than 90 percent over the
years. (Tax Foundation. 2009. ‘U.S. Federal Individual Income Tax Rates History, 1913-2009.) The present article use tax return data and income tax rate data from 1951
to 1990 to prove that high-income individuals are more responsive to the change of tax rate. Furthermore, higher marginal tax rate would make the tax revenue
“In this world nothing can be said to be certain, except death and taxes.”- Benjamin Franklin (1789)
Although people believe that the tax rate was set, they have varied widely over time. In the past 100 years, taxes have ranged from less than 5 percent to more than 90
percent of income. Federal imposed the income tax to taxable income and the tax rate would increase as income increase.In the United States, the marginal tax rates
for the highest income earners reaches 39.6% (see table 1).Which means if you are single and live in the US and earn $400,001, you need to pay the government
$158,400.40 for what you earned in 2013. The huge number of tax value would highly influence peoples’ living level and the degree of happiness.
Table 1.Marginal tax rates for 2013
Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0 – $8,925 $0 – $17,850 $0 – $8,925 $0 – $12,750
15% $8,926 – $36,250 $17,851 – $72,500 $8,926 – $36,250 $12,751 – $48,600
25% $36,251 – $87,850 $72,501 – a$146,400 $36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250 $146,401 – $223,050 $73,201 – $111,525 $125,451 – $203,150
33% $183,251 – $398,350 $223,051 – $398,350 $111,526 – $199,175 $203,151 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000 $199,176 – $225,000 $398,351 – $425,000
39.6% $400,001+ $450,001+ $225,001+ $425,001+
(2013– U.S. Census Bureau Income Tax. Rep. N.p., n.d. Web. 08 Apr. 2014.
The empirical results suggest that an increase in the marginal tax rate reduces taxable income primarily because taxpayers claim larger deduction. High-income
taxpayers are found to be more responsive to tax rate changes than lower-income individuals. Under such highly tax pressure, a lot of high- income people become tax
“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin (1789)
If the taxed was certain how come there are always a gap between real revenue and the expect one? This year tax evasionlikely to approach $300 billion, or nearly 15
percent of federal revenues. All told, as many as 30 to 40 percent of Americans won’t pay all of the taxes they owe in 2011. (The Christian Science Monitor, April 13,
The income tax can be reduced if the taxpayer used part of the income or benefit as charitable investment. Charitable donations for the year cannot exceed 50 percent
of personal adjusted gross income. Contributions to certain organizations, such as nonprofit cemeteries or veterans organizations, are limited to just 30 percent of
individual aggregate income. And also there are some income can be included as nontaxable income. People also avoid tax through black market and underground trade.
“All the generation start with breaking the law.”- Zhenyu Wu (China)
When people stand out for the right, government are supposed to start thinking about follow-up the policy. From Figure.2, the tax evasion contain 14% of tax gap for
2010-2011 by behavior.
(Tax Gap for 2010-2011 by Behavior. N.d. Full Fact. Web. 06 May 2014.
(Johnston, David Cay. “Where’s the Fraud, Mr. President?” David Cay Johnston RSS. Reuters, 13 Dec. 2011. Web. 06 May 2014.
From Figure.3 the U.S. was the largest tax evasion countries, but compare to other countries, the size of shadow economy was only 8.6% which was the least between the
ten countries. The empirical results suggest that low-income taxpayers prefer to use black market avoid tax but high-income taxpayer prefer to use a more legal way
avoid tax. The huge difference between the tax loss rate and the size of shadow economy rate identified that most tax evasions come from high- income people.
The influence of the change of income tax in high income people
The motivation of those who are working would decrease if these need to pay more on the income tax. Usually people work hard to get more payment, but a high
income tax would reduce the motivation of the working and people may reduce their work effort. If the tax rate in the lower level, people may increase the motivation
of working. Also, the labor supplier would increase in a certain level.
A reduction in the income tax rate could also raise purchasing power. People with higher real income than before could have more assets and debt.
Wealthy people avoid tax has always been a hot topic. People work and live in a high class often make charitable donations in order to pay less income tax than the
level they supposed pay and some of them making the false account or fake donations in order to avoid the tax or part of the revenue. If the cost of legal tax lower
than the cost of fake the income, the gray income and black market trade exist would be lower than now level.
The state tax revenue can increase if the income tax rate increases, so government could afford more for public spending and impress the living environment of
the whole country.
The labor supply would decrease if the government decided to increase the income tax. People may make a decision of immigration because of the high income tax,
and then country would lose some high tectonic workers.
However, reduce the inequality between different level is one of the most important purpose of government. But the long-term decline in income is troubling to
economists, especially as the middle and lower classes have fared considerably worse than the rich. Since 1967, Americans right in the middle of the income curve have
seen their earnings rise 19%, while those in the top 5% have seen a 67% gain. Rising inequality is seldom a sign of good social stability, but increase the marginal
income tax rate was not the way solving it.
Woolsey, W. W., & Foster, S. D. (2009). Income tax rates from 1913 to 2006. Journal of Private Enterprise, 25(1), 141-
Tax Foundation. 2009. ‘U.S. Federal Individual Income Tax Rates History, 1913-2009.” http://www.taxfoundation.org/taxdata/show/151.html
2013– U.S. Census Bureau Income Tax. Rep.N.p., n.d. Web. 08 Apr. 2014. http://www.census.gov/newsroom/releases/archives/2013.html
Cortez, Julio. “Tax Evasion: Why Do so Many Americans Cheat?” The Christian Science Monitor. The Christian Science Monitor, 13 Apr. 2011. Web. 06 May 2014.
Tax Gap for 2010-2011 by Behavior. N.d. Full Fact. Web. 06 May 2014. https://fullfact.org/factchecks/tax_evasion_avoidance_cost_taxpayer_25bn-28789
Johnston, David Cay. “Where’s the Fraud, Mr. President?” David Cay Johnston RSS. Reuters, 13 Dec. 2011. Web. 06 May 2014.
Government 2013 Revenue Details.” Usgovernmentrevenue. N.p., n.d. Web. 06 May 2014. http://www.usgovernmentrevenue.com/year_revenue_2013USbn_15bs1n_10#usgs302
Fleurbaey, M., &Maniquet, F. (2006). Fair income tax. The Review of Economic Studies, 73(254), 55. doi:http://dx.doi.org/10.1111/j.1467-937X.2006.00369.x
“How to Pay No Federal Income Tax.” How To Pay No Federal Income Tax. N.p., n.d. Web. 08 Apr. 2014. http://www.bankrate.com/finance/taxes/how-to-pay-no-federal-
“How Much Will Charitable Donations Lower My Taxes?” Finance.N.p., n.d. Web. 08 Apr. 2014. http://finance.zacks.com/much-charitable-donations-lower-taxes-1760.html
discuss about why high-income taxpayers should pay less than present level