Rising Federal Taxes for the Rich: The Rich Now Pay a Far Bigger Share Under Bush Tax Cut!

NCPA ^ | Bruce Bartlett

[xzins]

***Snip*****

Progressivity and the Tax Burden

Our tax system, however, is highly progressive, meaning that as one’s income rises, a higher proportion of that income is taxed. Thus, those in the highest tax brackets contribute more to the overall tax burden even though there are far more people in lower tax brackets. For example:1

• According to data from the IRS, the bottom 50 percent of income earners pay approximately 4 percent of income taxes.

• The top 25 percent of income earners pay nearly 83 percent of the income tax burden, and the top 10 percent pay 65 percent.

• The top 1 percent of income earners pay almost 35 percent of all income taxes.

• The top 400 richest Americans paid 1.58 of total income taxes in 2000.2

Rising Federal Taxes for the Rich

The empirical evidence shows that the wealthiest citizens are also paying an ever-increasing proportion of all taxes collected by the federal government. Data from the Congressional Budget Office show not only that taxes on the wealthy have risen over time but that the 2001 Bush tax cut barely kept their share of the tax burden from rising further:3

• In 1984, after the Reagan tax cut had been fully phased in, the bottom quintile (20 percent) of income earners paid an average federal tax rate (individual, payroll, corporate and excise) of 10.2 percent.
• The top quintile of earners paid 24.5 percent and the top 1 percent paid 28.2 percent.
• In 2001, after the first Bush tax cut had taken effect, those in the bottom quintile paid average federal income taxes of 5.4 percent, about half of what they did 20 years ago.
• Those in the top five percent saw a slight decline in their federal tax rate (28.6 percent, down from 29.7 percent).
• The top 1 percent, however, saw their overall federal tax burden increase slightly, from 33 to 33.2 percent.

Despite the accusation that it was the very wealthiest who benefited the most from the 2001 tax cut, their federal tax burden stayed level at best and increased at worst. Progressivity in the tax system rose and the wealthy now pay about six times more than the poor.

We can also look at the overall share of federal taxes paid to detect a similar pattern. For example:4

• From 1984 to 2001, those in the bottom quintile saw their share of the total tax burden drop from 2.4 percent to 1.1 percent.

• Those in the top quintile saw their share rise from 55.6 percent to 65.3 percent.

• The top 10 percent increased their share from 39.3 percent to 50 percent; the top 5 percent’s share rose from 28.2 to 38.5 percent; and those in the top 1 percent saw their share skyrocket from 14.7 percent to 22.7 percent.

Overall, the poor paid about half as much of the federal tax burden in 2001 as they did in 1984, while the rich paid about 50 percent more. Even those in the middle class, often said to be hit hardest by increasing taxes, saw their share decline by about a third.

Raising Taxes on the Rich Is Counterproductive

Despite these figures, many critics of the Bush tax cuts still insist that the rich aren’t paying their fair share of taxes, and that marginal tax rates should be increased for those in the highest tax brackets.

Interestingly, though, historical examples show us that when marginal tax rates on the rich are higher than 30 percent, the rich actually pay less of the total tax burden, because they tend to shelter, hide or underreport more of their income to avoid those high rates. Alternately, when taxes are lowered on the rich, their share of the total tax burden climbs. Consider the following evidence from three major tax rate reductions:5

• In the 1920s, the top tax rate fell from 73 percent to 25 percent, but the wealthy went from paying 44.2 percent of the tax burden in 1921 to more than 78 percent in 1928.

• In the 1960s, after JFK cut the top tax rate from 91 to 70 percent, those making more than $50,000 saw their share of the tax burden rise from 11.6 to 15.1 percent.

• In the 1980s, after Reagan’s “supply-side” tax cuts, the top 1 percent saw their share of the income tax burden climb from 17.6 percent in 1981 to 27.5 percent in 1988.

Conclusion: “A Rising Tide Lifts All Boats”

President Kennedy once said that a rising tide lifts all boats, and he was right. When the economy grows, rich and poor alike benefit from rising wages, incomes, and productivity. Conversely, stagnation hurts all income classes simultaneously. The evidence from the 1960s through today illustrates that lower tax rates correlate with rising incomes for all sections of the population. Even cuts on capital gains and dividends, often though to benefit only rich stockholders, allow for greater investment and more job creation, which ultimately helps lower-income Americans. Though the wealthy pay an enormous share of the overall tax burden, tax cuts on their income would not only bring in more revenue, but would help lower-income Americans become more upwardly mobile.

Bruce Bartlett columns:

http://www.ncpa.org/edo/bb/2004/20040407bb.htm (“Distribution of the Tax Burden,” April 7, 2004)

http://www.ncpa.org/edo/bb/2003/bb071403.html (“The Rich Are Already Paying Their Fair Share,” July 14, 2003)

http://www.ncpa.org/edo/bb/2003/bb061603.html (“Republicans and the Earned Income Tax Credit,” June 16, 2003)

Economic Growth Strong Growth continues into 2004 says the Joint Economic Committe Click the Graph for more.

[xzins]

I'm no tax guru, but this struck me: Those in the top 20% of tax payers paid 55.6% of total income taxes in 1984. The top 20% share of taxes went up to 65.3% by 2001 before the Bush tax cuts. The top 25% now pay 83% of the American income tax burden.

This makes sense given that the bottom 20% saw their taxes go down to about 1.1% of the burden...and the bottom 10% no longer pay any taxes.

The point is this: If we had a blockwide SuperBowl Party and I used to have to bring 55 bottles of beer and now I have to bring 85 bottles of beer, then how in the world can someone say I'm now getting over?

[pbear8]

Apparently Teresa Heinz Kerry has not received the memo.

[xzins]

I wonder why her finances are not open for scrutiny.

Just the little bit we know says she pays about 12% in taxes....about a third of what her income tax bracket says she owes.

[Teplukin]

What irks me is that the Dems say "The portion of income that goes to the top 5% has increased". Well, of course it has! The president is limiting taxes on successful capitalists. Why should success be punished, and failure be rewarded?

We all need to vigilant against creeping socialism in the form of AFDC, Medicare, Medicaid, VA benefits, increased SS benefits, prescription drug benefit, etc. In the second Bush term, we need to cut benefits to match the cut in taxes. That will spur productivity, as Americans work harder.

[HannaUSA]

The top earners or the richest may pay the largest % of the taxes, but they still pay a smaller % of their income. What buts me is 20% of what most of us make has a huge influence on our economic status. It is often the difference between making it and not. For someone with billions, millions or even hundreds of thousands, that money is above and behond what anyone "needs" to live. I think the whole tax system stinks.

I don't mind helping and doing my fair share, but people like THEEERRRRREEEEEEEEZZZZZZZZZZAAAAAAAA make me sick. To harp about "the rich" when she are one, and she obviously used every loop hole available to her and we still don't know where her assets are, but I bet we can guess.

[BreitbartSentMe]

Here is an oldie, but goodie. I had to locate it today for my sister-in-law, so it was still open on my computer. Enjoy -

---

I was having lunch with one of my favorite clients last week and the conversation turned to the government's recent round of tax cuts.

"I'm opposed to those tax cuts" the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me and that's not fair".

"But the rich pay more in the first place" I argued, "so it stands to reason that they'd get more money back."

I could tell that my friend was unimpressed by this argument. Even college instructors are a prisoner of the myth that the "rich" somehow get a free ride in America. Nothing could be further from the truth.

Let's put tax cuts in terms everyone can understand. Suppose that every day 10 men go to a restaurant for dinner. The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest) would pay $59.

The 10 men ate dinner in the restaurant every evening and seemed quite happy with the arrangement until the owner threw them a curve. “Since you are all such good customers”, he said, “I'm going to reduce the cost of your daily meal by $20”. Now dinner for the 10 only costs $80.

The first four are unaffected. They still eat for free. Can you figure out how to divide the $20 savings among the remaining six so that everyone gets his fair share? The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth and sixth men would end up being paid to eat their meal!

The restaurant owner suggested that it would be fair to reduce each man's bill based upon the amount of money they already paid to eat dinner each night. So he proceeded to work out the amounts each should now pay. So now the fifth man now pays nothing, the sixth pitches in $2, the seventh $5, the eighth $9, the ninth $12, leaving the tenth man with a bill of $52 instead of $59.

Outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20" complained the sixth man, and pointing to the tenth man said, "and he got $7!"

"Yeah, that's right" exclaimed the fifth man, "I only saved a dollar, too. It's unfair that he got back seven times more than me!"

"That's true" shouted the seventh man; “why should he get $7 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute" yelled the first four men in unison. "We didn't get anything at all." "The system exploits the poor." The nine men surrounded the tenth and beat him up.

The next night the richest man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short!

And that, boys, girls, and college instructors, is how America's tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table any more.

After all, there are lots of good restaurants in Switzerland and the Caribbean!

Author Unknown (Probably written by Alan Greenspan)

[MosesKnows]

I'm no tax guru, but this struck me:

Has this observation ever struck you?

The nation's Constitution mandates that the country be a Republic, not a democracy.
Article IV Section 4. The United States shall guarantee to every State in this Union a Republican Form of Government

Liberal democrats like John Kerry want the nation to become a democracy so the majority can rule over the minority. Their success can be measured by monitoring what percentage of all income tax is paid for by the top 50% income earners. That percentage is now 96%. Please be sure you understand what that means. The top 50% of income earners pay 96% of all the income tax. John Kerry feels that is not enough and wants the top 50% of income earners to pay more than 96%.

If John Kerry is successful, how long before the top 50% of income earners are required to pay 100% of all income tax? How far are we then from the day when the top 49% of income earners pay 100% of the income tax? That can result if the nation moved from a Republic to a democracy as the liberal democrat would have it.

"The Roman Republic fell, not because of the ambition of Caesar or Augustus, but because it had already long ceased to be in any real sense a republic at all. When the sturdy Roman plebeian, who lived by his own labor, who voted without reward according to his own convictions, and who with his fellows formed in war the terrible Roman legion, had been changed into an idle creature who craved nothing in life save the gratification of a thirst for vapid excitement, who was fed by the state, and who directly or indirectly sold his vote to the highest bidder, then the end of the Republic was at hand, and nothing could save it. The laws were the same as they had been, but the people behind the laws had changed, and so the laws counted for nothing.
Teddy Roosevelt on the Fall of the Republic

[xzins]

The tax structure does not have them paying a smaller % of their income. It has them paying a higher percent.

Their tax lawyers help them, of course, but I find it odd that people say the President was helping the rich when the rich ended up with this tax cut paying a LARGER share of the burden.

The democrats are asking that they had paid an even larger share than 85%.

There's something about that that is unfair.

At some point the unfairness smacks you in the face. Not only that, it means that some are getting a free ride...and THAT is bad policy. That policy teaches them over time that they DON'T have an investment in this country.