Tax Facts: What the class-warfare warriors won't tell you.

National Review Online ^ | January 10, 2003 | William P. Kucewicz

[xsysmgr]

The intensifying tax-cut debate needs a reality check.

When critics allege that the Bush plan is a “tax cut for the rich,” they conveniently neglect to say that three-quarters of all federal income taxes are paid by fewer than one-seventh of the nation’s households. About 19.5 million tax-return filers in 2000 had adjusted gross incomes of $75,000 or more and earned 63% of total U.S. taxable personal income. Even though these taxpayers accounted for just 15% of all tax returns, they paid 75% of total federal income taxes.

The class-warfare warriors further fail to mention that fewer than 240,000 households making $1 million or more pay almost one-quarter of all federal income tax. Bush’s opponents never explain that one-quarter of U.S. earners pay no federal income taxes at all. And the beggar-thy-neighbor supporters of double taxation ignore the fact that more than one-third of all dividends’ recipients make less than $40,000 a year in adjusted gross income.

The charges being leveled at the Bush plan, in actuality, say more about the progressivity of the federal income tax system — especially after the 1993 tax hikes — than they do about the proposed tax cuts themselves. Progressivity is the reason higher-income earners would benefit substantially from tax cuts — because they pay most of the taxes.

Thus, saying that the Bush plan is a “tax cut for the rich” makes about as much sense as decrying antibiotics as “medicine only for the sick.”

Here are some additional tax facts extrapolated from “Individual Income Tax Returns, 2000” in the Fall 2002 issue of the IRS’s Statistics of Income Bulletin:

• Nearly 33 million households that filed tax returns in 2000, or 25% of the total, paid no federal income tax.

• Almost 110 million households making under $75,000 represented 85% of all filers of tax returns and earned 37% of taxable income nationwide in 2000, yet they paid just 25% of total federal income taxes.

• Roughly 9 million households (or 7% of all federal tax returns) earned $75,000 to $99,999 in 2000, grossing 12% of national taxable income but paying only 10% of total federal income taxes.

• About 11 million households (or 8% of total tax returns) earned $100,000 or more in 2000, representing 51% of total taxable income and 65% of federal income-tax receipts.

• Some 3 million households (or 2% of tax-return filers) had incomes of $200,000 or more in 2000 and many of them were taxed at the then-top marginal rate of 39.6%, which kicked in at $288,350. They earned 33% of national taxable income but paid 46% of all federal income taxes.

• Nearly 636,000 households (or 0.5% of tax returns) earned $500,000 or more. They accounted for 22% of total taxable income yet supplied 31% of federal income tax revenues.

• Around 240,000 households (or 0.2% of tax returns) had $1 million or more in income, representing 16% of the national total, and paid more than 23% of all federal income taxes in 2000.

As for dividend earners, one-quarter had adjusted gross incomes of less than $25,000 in 2000, and one-sixth earned less than $15,000. Nearly 12% of dividend earners had incomes of less than $10,000 and 7% had incomes below $5,000. Matter of fact, more than 2.4 million tax-return filers with no adjusted gross income or incomes below $5,000 received $2.7 billion in dividends in 2000.

About two-thirds of all dividends’ recipients had incomes below $75,000 and only 7% had incomes of $200,000 or more.

Dividends are an important source of income for many low-income (and presumably elderly) households. More than 2 million households with adjusted gross incomes of $1 to $4,999 were paid over $1.1 billion in dividends in 2000, with dividends representing 49% of their total taxable income.

There were 1.6 million households with incomes of $5,000 to $9,999 that received $1.9 billion in dividends, providing 14% of their taxable incomes, and another 1.6 million households with incomes of $10,000 to $14,999 were paid $2.7 billion in dividends, representing 7% of their taxable income.

Dividends play a less important role for middle-to-upper-income earners. Those with incomes of $20,000 to $74,999 received more than $31 billion in dividends in 2000 but the payments made up just 2% of taxable income. Earners making between $75,000 and $199,999 had total dividends of $29 billion, representing less than 3% of taxable income. Households with incomes of $200,000 and above received $92.6 billion in dividends in 2000, representing 4% of their taxable income.

The “rich man, poor man” critics of the Bush tax plan are taking a leaf out of Bill Clinton’s book. The Clinton tax hike of 1993 transferred much of the federal tax burden to upper-middle and upper income earners, representing about one-seventh of American earners. This helps to explain why the public outrage over the largest tax hike in U.S. history was so muted — only a relatively small fraction of earners were adversely affected.

Most important, of course, is the Bush plan’s effect on the economy. Economic growth is based on the availability of finance to underwrite business creation and fund capital spending on productivity-boosting equipment and technology. Productivity gains, in turn, result in lower prices, higher incomes, and improved living standards.

To the extent that income taxes reduce personal disposable income, both consumption and investment suffer. And since the propensity to save rises with income, a progressive tax that especially penalizes higher incomes undercuts new investment.

High marginal tax rates, particularly on those who save more than they spend, impair the dynamics of economic growth, leaving us all the poorer.

— William P. Kucewicz is editor of GeoInvestor.com and a former editorial board member of The Wall Street Journal

[Phantom Lord]

Self Bump

[aruanan]

Wealth of information BUMP!

[Barney Gumble]

Very informative.

Why do the Democrats cry class warfare? What else would they say? They want high taxes and everyone to be dependent on the government. No ordinary people like taxes. So how else do you oppose a tax cut except for saying its only for the rich?

[Mo1]

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[Willie Green]

In the "old" economy, one could rely on the "trickle down effect" of tax cuts to stimulate investment, economic development and job creation.
However, in Dubya's "new" GLOBAL economy, those benefits are exported offshore to nations such as Mexico, India, Iraq and China.
Americans are left behind, languishing under the burden of skyrocketing National Debt.

[elbucko]

Excellent Post Bump!

[GhostofWCooper]

2% of tax filers earned 33% of national taxable income but paid 46% of all federal income taxes.

Wow.. 1/50th of the people earned 1/3 of the dough. I see why they aren't all that vocal in their protests. Too busy drifting around the caribbean on the yacht..

Don't get me wrong, I'm in favor of any tax cut, as long as it helps starve out the rats in DC. I pay thousands of dollars every year, and I have holes in my pants.. And I don't even get a muffler this year. (No kids, no dividends, no tax cut.)

If the economy or industry in general picks up, who knows, I may get more over-time. I guess that's something.
Thanks, Jorge!

[Slipjack]

For they are Socialist and want more of you Tax Dollars from you so that they can spend it as they feel fit on Pork Borking Programs and other welfare ones!

[RicocheT]

Also, lower income wage earners qualify for "Earned Income (tax) Credit which is sort of reverse income tax. You file to get a BIGGER refund than the taxes you have paid. When Democrats say the Bush plan fails to give enough breaks to the working poor, they are ignoring the fact many working poor already have a huge break.

On the state level, other breaks exist. Wisconsin gives "Homestead Credit" to all poor who have a rent or property tax receipt. That too is an enhanced refund.

[Redleg Duke]

You keep babbling the exact same thing on each and every thread! Tell your buds at the DNC to modify their faxes a little, will ya!

[Willie Green]

The same comments are applicable.
Unlike those who attempt to "spin" their position on issues, I strive for consistancy.

[2right]

There should be a line on every tax return that allows those feeling that they have not been taxed enough to make a donation to the government. I'd love to see the stats on much money that would bring in!

[Atlas Sneezed]

"Wow.. 1/50th of the people earned 1/3 of the dough. I see why they aren't all that vocal in their protests. Too busy drifting around the caribbean on the yacht."

You can't buy a yacht while earning $200,000 per year, especially when you didn't start earning and saving until you were in your 30s due to the pesky process of gaining a profesional degree and internship, not to mention that the $200k has to cover paying off $150,000 in student loans. Others who are earning $200k because they built businesses face similar challenges.

Also, not everyone who earns $200k earns that every year. Many of those "yacht-owners" may have simply had a good year.

(You are playing into the hands of the class-warriors.)

[Atlas Sneezed]

"Wow.. 1/50th of the people earned 1/3 of the dough. I see why they aren't all that vocal in their protests. Too busy drifting around the caribbean on the yacht."

You can't buy a yacht while earning $200,000 per year, especially when you didn't start earning and saving until you were in your 30s due to the pesky process of gaining a profesional degree and internship, not to mention that the $200k has to cover paying off $150,000 in student loans. Others who are earning $200k because they built businesses face similar challenges.

Also, not everyone who earns $200k earns that every year. Many of those "yacht-owners" may have simply had a good year.

(You are playing into the hands of the class-warriors.)

[elbucko]

During the 1960's my Dad had a medium size construction company (by the scale of to day, now it would be considered small). He built track style homes from 10 to 20 in number. He did well for a "Hoosier Boy", with an 8th. grade education and a heart murmur. Most of the people that worked for him were his friends and were as blue collar as he was. He paid them well. He did well and he formed a small corporation. The stockholders were his friends and employees. The Corp. was set up by an attorney and CPA. All the "i"'s were dotted and the "t"'s crossed. He died in 1965, my mother was his executrix.

The IRS put my widowed mother through hell during probate. I was 17 and remember the IRS agent telling my mother in the hallway of the Fed Courthouse that he was' "Going to go after her until she was broke". The IRS claimed my fathers company owed $80,000 in taxes on passed through dividends that my father paid those who invested with him. The IRS settled for $10,000. That should indicate the validity of their case. Still a lot of money in 1965.

The point of this vignette is that dividends are treated as "Booty" and are taxed in a cynical and arbitrary manner. The tax on dividends prevents many small companies from raising capital at the same time reducing the choices for the small investor to put his money at a better rate than 2%. It reduces competition to the banks. It's a toll road that causes a slowdown and stop every mile on the road to progress. We also know, the taxes we pay are the product of cynical minds. We know this intuitively. I don't mind paying my fair share, or even anothers share, if it is good for the country. But I do mind paying taxes just to give a Democrat a job. Like that IRS agent 35 years ago admitted he was, when I asked him what party he belonged to as we stood in the Federal Building so long ago during the Johnson Administration.

[Barney Gumble]

A line on the tax form for those who want to donate more money would probably bring in about as much money as it did for Lars Ulrich and Mettalica when they set up the fund for people who felt sorry for them because they lost revenue due to Napster.

[elbucko]

You keep babbling the exact same thing on each and every thread!

Yes he does. It's getting kinda' old too.

"Willie" is either a Dem or voted for Perot and hasn't gotten over the disappointment or the embarrassment. He is like a form of "tax" all unto "hisself".

[2right]

Exactly, as long as there are no donations there is an argument for tax reductions/elimanations!

[TRY ONE]

"Wow.. 1/50th of the people earned 1/3 of the dough. I see why they aren't all that vocal in their protests. Too busy drifting around the caribbean on the yacht.."

I know a lot of the 2%ers....and everyone I know is not on a yacht....they are WORING to make payroll and to pay taxes.....