By Mark W. Fowler, J.D., M.D.

“There is no distinctly American criminal class — except Congress.” —Mark Twain

As the nation approaches April 15, Tax Day, it is appropriate to revisit the claims of certain members of Congress including a faux Native American, an economically illiterate former bartender from New York, as well as others who can be heard to clamor for more taxes on the rich. They support these pleas with the unsubstantiated and misleading assertion that the rich “don’t pay their fair share.”

This is a particularly repulsive argument for a number of reasons. It should be apparent from the government response to COVID that enacting punitive restrictive measures on the public is much easier in a climate of fear or resentment. At a time when inflation and particularly rising energy prices inflict pain on the middle class, elites in Washington feel it necessary to create resentment against the rich by arguing they don’t pay their fair share of federal income taxes. Let’s break this down a step at a time.

First, the House of Representatives has the exclusive power to enact legislation pertaining to revenue. Article I, Section 8, Clause 1 of the Constitution gives Congress the power to lay and collect taxes. It is no doubt true that special interests may actually write and submit to members tax bills, but it is Congress that must enact them. Therefore, any inherent unfairness in tax laws must be laid at the feet of the members themselves. It is therefore baffling to hear members of Congress blather about an unfair tax system. They wrote it; they should fix it if needed.

If needed. The United States has always had a progressive personal income tax system. This means that the more you make, the higher percentage of income you are required to pay. This has been the case since the personal income tax was made constitutional under the 16th Amendment. At that time, the maximum rate was 7% on income over $500,000 (representing over $7,000,000 in 1994 dollars). The tax was 1% on income over $20,000 ($298,000 in 1994 dollars). Obviously, the tax was then imposed only on higher wage earners as the average wage for laborers was less than $10,000 per year. Most people paid no income tax.

Today, here are the relevant facts from the Tax Foundation.

To be in the top 1% of wage earners you have to have an annual salary of over $750,000, and you will pay on average over $230,000 (30%) in federal income taxes. By contrast, a single wage earner making $32,000 will pay $3,641 (11%) in income taxes.

The bottom 50% of wage earners paid only 3.5% of the total income taxes.

The top 1% of wage earners paid 38% of the income tax revenue and the bottom 90% paid only 29% of the revenue.

The top 50% of wage earners paid 97% of federal income taxes and the bottom 50% paid only 3%.

It is obvious then that the rich pay a disproportionate share of their income in taxes. As might be imagined, the higher the tax burden, the more likely it is that taxpayers at that high bracket will change their behavior to reduce their tax burden. In his autobiography An American Life, Ronald Reagan writes of being in the 91% tax bracket. When offered a movie role, he declined it since so much of his income would go toward the income tax. But he was struck by the impact of his decision on the supporting staff of a movie production company. They would have less work as a result of his decision. In addition to this most obvious effect, there will be other costs of an increase in taxes. Rich people can hire lawyers, accountants, and lobbyists to create a special set of deductions that benefit them disproportionately compared to middle class taxpayers. They can, if rich enough, move to a more tax-friendly country or state in the case of state income taxes. This is why retirees are more prevalent in Florida than northern states, where individual tax burdens are higher. Even such mundane deductions such as charitable donations and mortgage deductions benefit the rich more compared to middle-income taxpayers. This is why multimillionaire Hillary Clinton donates her used underwear; she gets a deduction for doing so.

Let us now take a brief look at why people are rich. Setting aside those involved in criminal enterprises and politicians or their families, people get rich by offering something of value that the world wants and is willing to pay for. No rich person ever took so much as a dime from me that I wasn’t willing to give in exchange for something of value. I routinely give the Walmart family money in exchange for groceries, light bulbs, oil changes, household supplies, and personal items. I have money I’m voluntarily willing to part with in exchange for this merchandise. When the transaction is complete, I have something I valued more than my money, and they have money they valued more than the items sold to me. Professional athletes are rich (or are paid lots of money) because they have talents that are rare and valued by the public. However, it is totally within my control as to how much I contribute to professional athletes — nothing. Their talents are of minimal value to me. I don’t watch them on television and almost never attend a professional sporting event.

Bill Gates never took a dime from me. What he did do along with hundreds (thousands?) of others is provide me with a free Hotmail account for the last 19 years. I use it personally and professionally. With my email account, along with the Internet, I can shop, communicate with friends, follow the news, and write this column. My free account has saved me hundreds of dollars in postage, travel, and long-distance phone expenses. It is of no concern to me that he owns yachts, airplanes, farms, fancy houses, etc. But what is of concern to me is the notion he should be punished for his accomplishments by being taxed heavily. Money he is assessed in taxes is money diverted away from more useful things. Gates is far more likely to spend his money usefully than the federal government, which recently abandoned $89 billion of military equipment to the Taliban and would now like to purchase drug paraphernalia for addicts to facilitate illicit drug consumption.

Historically, Henry Ford, John Rockefeller, Cornelius Vanderbilt, and others amassed great wealth by providing things to the public that the public needed and was willing to pay for. Automobiles, petroleum, railroads, and so many other innovations greatly improved the lives of Americans then and now.

I excluded wealthy politicians and criminals from this analysis. In the case of criminals for obvious reasons, but in the case of politicians for the specific reason that too many of them use their position to enrich themselves by selling influence. Politicians who create so-called charitable organizations skim off handsome salaries and travel expenses. Entities donate to such charities in exchange for the hope of favorable treatment by the politicians when those politicians have power. When their influence wanes, revenue drops off. Likewise, they use their inside knowledge and power to obtain all manner of sweetheart deals. Hunter Biden comes to mind. Nancy Pelosi has amassed a fortune of $300 million dollars on her public servant salary. These are hardly isolated incidents.

We live in a society that rewards success and that is only fair and right. Lamentably, we also live in a society that rewards fools and knaves for demonstrably false posturing. Let us hope we don’t let them kill the goose that laid the golden egg.

One final thought. Governments at all levels forcibly take from me money to finance their projects. To the extent this goes to pay for roads, bridges, schools, teachers, police and fireman, and support the deserving poor, I have no objection. But I do object to the waste concomitant with COVID fraud, squander (arms to the Taliban), and foolishness (crack pipes to drug addicts).