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How much do the wealthy really contribute?

By March 3, 2015Business

The Tax Foundation did a report “Putting a Face on America’s Tax Returns.”  It has some factual information that many socialists, Obama supporters, and uneducated voters may find surprising.

Income taxes today are the top source of revenue for our government coming in at around $1.38 trillion.

Who pays that? The truth is, everyone feels like they are the ones that pay it.

People who make more money than me, people who make less money than me, even people who don’t make any money feel like they pay all the taxes.

The Tax Foundation has given us a more factual view point to answer the question of who is paying the income taxes, which is always a better way to analyze things than just feelings alone.

Let’s first look at the makeup of income earned. 
  • 26% of filers earn less than $15,000
  • 21% earn between $15k and $30k
  • 39% earn between $30k and $100K
  • 10% earn between $100k and $200k
  • 3% earn between $200k and $500k
  • 1% earn more than $500K
Income tax paid is a different story.
  • Top 1% earners pay 37.4% of income taxes
  • Top 10% earners pay 70.6% of income taxes
  • Bottom 90% of earners pay 29.4% of income taxes (keep in mind that is with the bottom 47% of earners actually getting refunded more than they paid in)

These facts make me wonder why anyone feels like the wealthy aren’t paying their fair share.  Have you ever heard of “Attribution Theory”?  Fritz Heider, a psychologist, is often described as the “father of attribution theory.”  His theory looks at how people perceive each other, and in particular, how they account for their own behavior.

The theory simplified is explained this way.  If I do something good or accomplish something, I will naturally feel like it is because internally I am amazing. If you do something good, I will naturally feel like you had external help in doing that.  You can’t be successful of your own accord, it’s because you got lucky.  On the flip side, if I do something bad or fail at something, I will say that it is because of external factors out of my control.  If you do something bad or fail, I will say it’s because internally you are lazy and it’s your fault.

When the government and the media focus on the wealthy, there is a whole lot of attribution theory going on.  And our natural tendency is to agree with the media spin we are exposed to.  I hope we can fight that tendency.  What’s wrong with acknowledging that most wealthy individuals are wealthy because they create a lot of value.  They also create a lot of jobs, and they are problem solvers.

One of my favorite shows is The Shark Tank on ABC.  It’s a show where a panel of wealthy investors listen to business pitches.  They sometimes invest, they sometimes don’t.  (You can learn some really great business principles by watching the show.) The thing I want to bring to our attention is that 1) those wealthy investors earned their wealth, and 2) now they are giving the opportunity to thousands of others to wealthy too.

Our goal is to help our clients keep and grow their wealth. It’s hard for someone to earn wealth if they currently feel disdain towards the wealthy class.

Also, no amount of taxing and redistribution of wealth will improve the so called “divide” between the middle and upper class.  (I actually really hate that is how it’s referred to. Have we ever stopped to consider that some people are exactly where they want to be.  I actually don’t have that many clients that are hoping to be uber rich.  They want sufficient for their needs and flexibility to do other things if they want to.) Some politicians seems obsessed with answering the question, how can we stop the “divide” from expanding?  They look at the situation like the classic attribution theory perspective.  Why not consider the fact that maybe the rich keep getting richer because they keep creating value?

*As a disclaimer, we all define “being rich” and “wealthy” differently.  I have met some of the most financially poor individuals that exist in the world and some would tell you they were “rich.” And they were.  They created value where they could and they had what they needed and wanted.

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