Wall Street Journal math
By Jonathan Chait
The very rich are earning a larger and larger share of our national
income. Therefore, fairness dictates that we must cut their taxes.
You might think that the above is an absurd piece of moral reasoning.
And you'd be right. But it's exactly the argument that influential
conservatives are making.
A recent Wall Street Journal editorial cites an IRS study detailing
which income groups pay what level of taxes. The editors note with
satisfaction that the highest-earning 0.1 percent of the population
paid 5.06 percent of the federal tax burden in 1979, and was paying
9.52 percent as of a couple of years ago.
To the Journal editors, this proves that "the overall tax burden grew
more progressive from 1979 to 1999." The editorial goes on to note that
any move to raise taxes on the rich would be deeply unfair because
those poor folks "already bear an outsized share of the American tax
burden."
It is certainly true that the richest 0.1 percent are paying a higher
share of the national tax burden. Is that because they're getting
socked by the tax code?
No, it's because the very rich are earning a far bigger proportion of
the national income.
In 1979, the highest-earning 0.1 percent took home about 3 percent of
the national income, and paid about 5 percent of the taxes. In 1999,
they earned about 10 percent of the national income and paid about 11
percent of the taxes.
In fact, the tax rate borne by the very rich has plummeted.
In 1979, the top 0.1 percent paid, on average, 32 percent of their
income in taxes. Today, they pay less than 23 percent. So what's
happening is that the top 0.1 percent are paying a higher share of the
tax burden because their share of the national income is rising faster
than their tax rates are falling.
The Journal editorial board sees this state of affairs as class warfare
against the rich.
At this point, you might be wondering whether it's really possible that
professional editorial writers at a first-rate newspaper - people who,
after all, are paid to think seriously about issues like this - could
make such a simple statistical mistake. Are they really so dishonest or
so dumb as to think that you can measure the fairness of a tax code by
looking at what share of the taxes various groups pay without
considering how much they earn?
As a regular reader of that page, I can tell you that the answer is:
Yes, they really, really are.
Indeed, of the many statistical butcherings the Journal employs to
defend its various misguided beliefs, this particular device ranks
among its favorites. It hauls out some form of this argument - the rich
are being mistreated because they're paying a rising share of the tax
burden - at least once a year.
In 2002, to take one example at random, a Journal editorial noted: "The
top 1 percent of tax filers are also paying a much higher share than
they used to.... There's a word for this kind of tax system. It's
called progressive, not to mention confiscatory." And then again in
2003, the Journal editorialized that another study showed "the (tax)
share of the lowest quintile was 1.6 percent, while the share of the
highest quintile was 60.2 percent. Karl Marx, call your office." I've
read Marx, and I don't think a system in which the rich earn a
continuously higher proportion of the national income while
simultaneously enjoying falling tax rates is what he had in mind.
So how progressive, or confiscatory, is our tax system?
Federal taxes are progressive. According to calculations by Citizens
for Tax Justice, workers in the middle of the income scale pay about 16
percent of their income in federal taxes, while those in the top 1
percent pay about 25 percent. But that's offset in part by state and
local taxes, which hit the poor and middle class much harder.
Taking into account all taxes, the top 1 percent pay around 33 percent
of their income in taxes, while the bottom 99 percent pay 29.7 percent
of their income in taxes. The rich pay somewhat higher tax rates, but
not that much higher. (President Bush's tax cuts, which
disproportionately benefited the rich, narrowed that gap.)
Is this system confiscatory? Communist?
Only if you're a complete economic illiterate.
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"The really rich people figure out how to dodge taxes anyway." - George
W. Bush, Aug. 9, 2004
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