Posted on 01/17/2002 9:19:45 AM PST by Henrietta
Bruce Bartlett (archive) (printer-friendly version) January 17, 2002
The successful pay plenty of taxes
For many years, the Tax Foundation has published figures on shares of federal income taxes paid by percentiles of income. They always showed those at the top of the income distribution paying an overwhelming share of all taxes. This was powerful refutation of the traditional liberal argument that the rich don't pay their fair share. These data went mostly unnoticed until 1978, when Paul Craig Roberts, then working for Sen. Orrin Hatch, R-Utah, published an article about them in the March issue of Harper's Magazine. Back then, Harper's was a highly respected publication -- it has since gone downhill -- and his article got a lot of attention.
Roberts showed that the top 1 percent of taxpayers -- those earning more than $59,338 in 1975 -- paid 18.7 percent of all federal income taxes, up from 17.7 percent 5 years earlier. A similar increase was shown by the top 5 percent, top 10 percent and top 25 percent of taxpayers. The top half of taxpayers paid 92.9 percent of all income taxes in 1975, meaning that the bottom 50 percent paid just 7.1 percent.
Interestingly, the reaction of liberals to the Roberts article was to deny it. They simply refused to believe that the data were correct. House Majority Leader Jim Wright, D-Tex., was especially incredulous. He demanded that the Congressional Research Service give him the correct data.
The CRS response was written by Donald Kiefer, now head of the Treasury's Office of Tax Analysis. Although quibbling with some of Roberts' interpretations, he confirmed that the data were accurate. He had little choice because the original figures came straight from the Internal Revenue Service's statistics of income report.
In the years since, the annual publication of the IRS's tax shares data has been eagerly awaited by those opposed to class envy. The most recent figures became available on Jan. 10 and were released by the Joint Economic Committee of Congress. Amazingly, they show that the share of total federal income taxes paid by the top 1 percent of taxpayers has doubled since 1975. In 1999, they paid 36.2 percent versus 18.7 percent in 1975, the latest available when Roberts wrote his article.
Other upper-income groups have also seen a sharp increases in their share of the tax burden. Between 1975 and 1999, the top 5 percent of taxpayers went from 36.6 percent to 55.5 percent of taxes, the top 10 percent went from 48.7 percent to 66.5 percent, the top 25 percent went from 72 percent to 83.5 percent, and the top half of taxpayers went from 92.9 percent to 96 percent. The bottom 50 percent of taxpayers now pay just 4 percent of federal incomes taxes.
To put these numbers into perspective, it should be noted that the top 1 percent of taxpayers reported just 19.5 percent of adjusted gross income. Thus, their share of the tax burden exceeded their income share by almost 17 percentage points. For the top 5 percent, the spread was even greater -- more than 21 percentage points. By contrast, for those in the bottom 50 percent, the difference between the percentage of total taxes and total income was minus 9.25 percent. That is, their income share greatly exceeded their tax share.
On a chart, these data form a kind of "yield curve." For economists, the yield curve measures the spread between short-term interest rates, which are normally low, and long-term rates, which are normally higher. The slope of this curve is an important indicator of monetary policy and future economic conditions. A tax yield curve would show how steeply progressive federal income taxes are.
Those in the top 1 percent of the income distribution paid a 27.5 percent effective income tax rate in 1999. Polls show that this exceeds the highest percentage of taxation that most Americans believe anyone should pay, no matter how large their income. The latest, a Fox News/Opinion Dynamics poll taken in March 2001, found that a majority of Americans think 20 percent is the most anyone should pay.
However, polls also show most people greatly underestimate how much the rich actually pay. That is why liberals usually get a receptive audience when they say that the rich aren't paying their fair share and should be denied the benefits of any tax cuts. One study found that most people think that the rich don't pay more than 20 percent now.
For these reasons, greater knowledge about how much the wealthy actually pay in taxes is a powerful antidote to class warfare. Most Americans are fair-minded and don't envy those with incomes higher than they have. But if they are misled about the facts, they can make mistakes and vote for demagogues who hate the rich simply because they are rich.
i still don't see this holding in every day life. people will work harder if it means they get more money. you talk as though there were some kind of salary cap.
Frankly, I think that it is already too late. Just what kind of reform do you propose? I'm not talking about "Fair Tax", "Flat Tax", etc..
The government needs a certain amount of tax revenue to pay for the spending that the Congress legislates.
Do you think for one minute that Congress is going to legislate less spending?
Do you think for one minute that Congress is going to reduce the tax burden on the producers and add it to the "lower income folks"?
I don't think so. That's why I say that it's already too late.
Baloney! What tax bracket are you in?
i still don't see this holding in every day life. people will work harder if it means they get more money. you talk as though there were some kind of salary cap.
As a self-employed person, my marginal tax rate is approximately 46%: 31% income + 15% self-employment tax, based on last year's income. When I'm asked to take on a new client, for which I might make $500, I'm only going to get to keep $270 for the 5-10 hours that I will exert for those dollars. However, I will ask myself, 'do I really want to do this extra work, perhaps foregoing more enjoyable/non-economic pursuits, such as spending time with my family? If the tax rates were lower, I'd get a two-fold benefit: fewer hours needed to earn living expenses, and the opportunity to spend more time with my family, or other pursuits. So yes, there is a 'salary cap', in that there is a VALUE to our personal and professional time, for which we hand over WAY TOO MUCH to Caesar (the government).
One minor point: please show us the respect by taking the time to use proper punctuation in your posts. I understand this may sound elitist, but your views are overshadowed by your lack of attention to detail. Thanks!
Your example is illuminating and gives me reason to rethink the issue.
please show us the respect by taking the time to use proper punctuation in your posts.
I do use proper punctuation. I just ignore capitalization, feeling that it does next to nothing for readability. Much as in your example, while I know there might be some small benfit in working harder at capitalization, it is just not worth the personal time I would have to give up (but for you, anything). 8^)
Now when my 12 year old son tries that argument on me(re capitalization), that will be a 'horse of a different color'! ;^)
Here's my basic premise: there's something really wrong when the average person has to work over 4 months out of the year, just to pay their taxes. And the worst thing about it is that all we hear is that it's never enough! That we need to 'invest' more money for ... (name your favorite program - guns or butter!). For the 50% of the people who pay only 4% of the tax burden, Ted Kennedy is their guy! OTOH, my wife and I have been blessed with talents and a work ethic that have enabled our household income to be in the upper 25%, only to be vilified by Daschle and Gephardt and the press agents for the lower 50% because we wanted our damn muffler!
Sorry for the rant, but that's where I'm coming from!!
I've been blessed to come in contact with these folks...the synergy has been fantastic! We appreciate, and value, each other's skills and talents...just like I appreciate and value the talents of my fellow Freepers!
Great. Let's stick it those successful rich guys (sarcasm)
I only wish you the good fortune of becoming one so that you'll know what it feels like to have finally made it and have the government confiscate more than 40%.
Yeah....Our CPA goes through each deduction worksheet and then says, "But that's irrrelevant because you can't take that deduction at your income level."
I've never been masochistic enough to do the math on the effective tax rate though. Ouch!! :-(
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