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December 11, 2005
Taxes: Who Pays What (Or: The Same Old Same Old)
It's time for the annual antidote to the "all Republicans want is tax cuts for the rich" myth. Bruce Bartlett (via Free Republic) summarizes the by now familiar (at least to conservatives) statistics:
A few weeks ago, the Internal Revenue Service released data on tax year 2003. They show that the top 1 percent of taxpayers, ranked by adjusted gross income, paid 34.3 percent of all federal income taxes that year. The top 5 percent paid 54.4 percent, the top 10 percent paid 65.8 percent, and the top quarter of taxpayers paid 83.9 percent.
Not only are these data interesting on their own, but looking at them over time shows that the share of total income taxes paid by the wealthy has risen even as statutory tax rates have fallen sharply. A growing body of international data shows the same trend. [...]
These data are all very familiar, but Bartlett goes on to take the analysis an important step further:
A common liberal retort to these data is that they exclude payroll taxes, which are assumed to be largely paid by the poor. However, it turns out that when one includes payroll taxes in the calculations, it has far less impact on the distribution of the tax burden than most people would assume, because the wealthy also pay a lot of those taxes, too.
In a 2004 paper presented to the American Statistical Association, IRS economists Michael Strudler and Tom Petska calculated percentiles data that included both income taxes and Social Security taxes. In 1999, the top 1 percent paid 23.3 percent of combined payroll and income taxes, the top 10 percent paid 52.2 percent, and the top 20 percent paid 68.2 percent.
After noting that data from other countries is now reinforcing the conclusion that higher taxes on the wealthy reduces tax revenue, Bartlett concludes:
At some point, those on the left must decide what really matters to them -- the appearance of soaking the rich by imposing high statutory tax rates that may cause actual tax payments by the wealthy to fall, or lower rates that may bring in more revenue that can pay for government programs to aid the poor? Sadly, the left nearly always votes for appearances over reality, favoring high rates that bring in little revenue even when lower rates would bring in more.
Emphases are mine.
But say what? You, as an observant analyst, might object as this commenter did, that these statistics don't mention the percentage of total income that the wealthy paid--thus rendering the argument faulty.
But another commenter sets the record straight:
In answer to your question about the income earned by the top 1%, here is from an IRS study http://www.irs.gov/pub/irs-soi/04asastr.pdf :
Income Shares The share of income accounted for by the top 1 percent of the income distribution has climbed steadily from a low of 9.58 percent (3.28 for the top 0.1 percent) for 1979 to a high of 21.55 (10.49 for the top 0.1 percent) for 2000.
So, apparently the top 1% of earners made less than 22% of the money, but paid 34% of the taxes. The rich are definitely getting "soaked."
Interesting stuff here. The "tax cuts for the rich" line is so reflexively pervasive in the pronouncements of almost every Democrat that most conservatives now can now cite from memory the figures Bartlett recaps. But the payroll tax issue is one I never quite had an answer for so it's nice to get some ammo on that front. And the "total income" question is one I'd never thought of before--and it too falls before the data.
But don't look for these numbers to show up on CBS, NBC, ABC or the New York Times. Why break a fifty year old tradition?
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