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The Big Tax Reform Disconnect

December 4, 2017

The focus changes daily in Washington, but there is one matter that seems to capture everyone’s attention regularly – tax reform.

Both bodies of Congress have presented competing bills, and the gulf between seems wide. 

But before debating the merits of either bill, there’s a key question that should be answered first. 

That is, who pays taxes now under the current system?

We often hear that the rich must pay their fair share. But in 2015, the top 1 percent of earners – those who earned $489,030 or more – paid 39 percent of all federal income taxes. 

In other words, 892,000 Americans paid almost 40 percent of the entire country’s tax bill. 

The top 5 percent of earners ($195,778 and up annually) paid 60 percent of federal taxes.

The top 10 percent, who made $138,031 or more, paid 70.6 percent of all federal taxes. 

Let that sink in – 1.7 million Americans, which is less than 1 percent of the population, paid more than 70 percent of all the federal taxes levied.

Is that fair?

The bottom half of income earners, those who made $39,275 or less, paid 2.83 percent of all federal taxes. 

And 37 million Americans had zero tax liability. They paid nothing. 

This year, 45.5 percent of U.S. households will not pay taxes, according to estimates.
That’s a huge problem because those people have no skin in the game. They become supportive bastions of big spending. 

Think about it, if you don’t pay taxes, why care about government spending? Why care about tax cuts? If you did care, it would be because you’d fear the gravy train was slowing down.

That disconnect creates a rift that makes the issue of taxes even more complicated.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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