When you or I claim deductions on our taxes, why does nobody accuse us of "finding every tax loophole we can"? Or when a small business owner hires a tax preparer at H&R Block to calculate the best way of filing taxes, nobody thinks anything out of the ordinary is afoot? Doing so is simply considered smart and prudent, and not doing so is viewed as paying more money to the government than necessary. Yet somehow, when it's a wealthy person *gasp* doing a similar thing through their accountants, suddenly people say it's selfish and vile.
Let us agree at the outset (per a famous 1920's court decision from Judge Learned Hand) that nobody is legally obliged to pay more tax than he or she owes. Therefore, any argument that a segment of society does not pay enough in taxes is therefore implicitly an argument that those people's tax liability should be legally adjusted to serve an economic or social policy goal. Such adjustments are inevitably a political choice.
However, while tax liability in theory is fixed in law, in practice there is some discretion in enforcement and the wealthy are better equipped to take advantage of it. The IRS cannot pursue every instance of tax noncompliance any more than the police can pursue every instance of exceeding the speed limit by so much as a mile an hour. This is why, for example, the New York
Times' story on Trump's inheritance from his father quoted from an IRS agent saying that in the context of an audit, pursuing inconsistent valuations of real property (something the
Times reported that Trump's father, and later Trump himself, used to reduce their tax bills) is a last resort.
Similarly, the wealthy have broader opportunities for wealth accumulation compared to you and me simply because many investment vehicles have quite high minimum buy-ins. For example, I cannot cash in on the (now national) success of Freddy's Frozen Custard because it is structured as a type of limited partnership and very few people have the money to get in. While legal compulsion could be brought in to open things up for small investors, this would constrain entrepreneurs' economic freedom to choose the business structure that is most appropriate for their commercial activities. Again, the tradeoff between the two eventually becomes a political choice.
I believe you and I were looking at the same data, just from different years. But, if those figures have deductions already rolled in—then it doesn't really discount my assertion that the wealthy pay more taxes than the rest of us by percentage point, does it?
I am not so sure, for two reasons. First, the basis for calculating AGI changes over time as some deductions become available while others go away. Second, as I understand it (not being a tax expert), deductions work by offsetting income that would otherwise be counted as adjusted gross income (so, e.g., a $10,000 deduction wipes $10,000 off of income). Since it is probable that most of the rich have more flexibility in structuring their income to maximize deductions, it is conceivable that a high tax burden as a percentage of AGI translates to a much smaller burden as a percentage of gross income without deductions applied.
What I do see in the Tax Foundation data is that year on year, the tax burden of the one-percenters converges very close to the 27.1% AGI value. This leads me to suspect that most one-percenter filers are stacking up enough deductions that they end up paying the AMT, the brackets for which range from 26% to 35%.
Moreover, as Rothman alludes to, the flip side of the majority of the tax take coming from the one-percenters is that small, incremental changes in their effective marginal tax rates have disproportionate effects on whether the government is able to cover its bills.
