Wednesday, December 07, 2005


I don't particularly mind Bruce Bartlett. Sure, he's a conservative, but the honest sort. And when I was a debater, I found his articles valuable, both for the arguments and being well-sourced. But this is just innane.
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.
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.

Okay, number one--this data is absolutely meaningless without some indication of what percentage of the total income the wealthiest 1%, 5%, 10% et al bring in each year. Even in a flat tax society, the wealthiest 1% would still pay a fair percentage of the total income tax because they make a fair percentage of the total income. If they make 10% of the income, they'd pay approximately 10% of the total taxes. Since we have a progressive tax system, they pay somewhat higher than that--but the disparity isn't as crazy as Bartlett plays it up to be. The only way for the wealthiest 1% of Americans to pay exactly 1% of the income taxes would be either a) for us to live in a communist society where everybody made the same amount of money or b) for us to have some extraordinarily low flat non-percentage tax which would crush the poor. Conservative economists always use these numbers and they always use them wrong.

This observation also leads us to problem number two: if the wealthy's share of tax dollars is rising, isn't that equally explainable by a rising income gap between the rich and the poor? Indeed, wasn't that the major critique of Reaganomics--they put more wealth in the hands of the rich while the poor stagnated? That seems to be the most plausible interpretation of Bartlett's data--the rich paid a greater portion of the tax load because the rich were getting, well, dirty rich(er). This is especially true because it isn't like the wealthy got a tax cut while the middle and lower class tax rates stayed constant or rose. Everybody's taxes fell, which will counter-act the proportionality argument Bartlett tries to make.

Third, economies move for complex reasons--it's foolish to associate them particularly with one policy or another (especially, and I know Bartlett knows this, fiscal as opposed to monetary policy). For Bartlett to say that the information he provides indicates that lower tax rates for the rich will give the government more money to spend on the poor is a gross oversimplification. And his statistics don't even prove that--they say nothing about whether governmental revenues rose or fell in this time period (in real dollars), just that the rich's share rose.

Fourth, the folks who want to lower taxes don't want to do it to see increased revenues--and they definitely wouldn't want to increase said revenues. They want to shrink government further and they want to cut programs--especially those for such no-good worthless constituencies like poor people. So to characterize the "choice" by the left as between keeping up appearances and joining the noble conservative crusade for greater financing on the safety net is just absurd.

So if Justin Jones really "couldn't say it better" himself, well, then I think liberal economic theory is in pretty good shape.


Mark said...

Uhm, Dave, the way the top 1% would pay 1% of the tax is if we were taxed equally not (re-?) progressively.

While this method certainly would garner less funds, perhaps much of what government engages in, is not best done by the government and a smaller federal government might be possible.

The argument for such systems is that it reverses the trend to have more and more people influencing government (voting) who have less and less financial stake in it. It's easy to vote for more spending when the money doesn't come out of your pocket.

pacatrue said...

I think the confusion is the 1% of what. If everyone is taxed at a 1% rate, then the only way we would actually all pay 1% of the taxes is if everyone earned the same. However, if I earn $1000 and my neighbor earns $100, then for us to pay the same amount, I'd have to be taxed at 1 tenth of the rate of my neighbor. So a flat tax gives everyone the same rate but different output since they have different income. To pay the same in absolute dollars (output) the poor would have to be taxed at a higher rate than the rich.

Justin said...

Hey, watch it Dave! :)

Anonymous said...

I can't even figure out how Bartlett is trying to make his argument. The numbers he states are factual enough but the claims he makes are patently false. The top 1% are carrying slightly more of the tax burden now than 20-25 years ago because they are making significantly more.

For an in-depth analysis of income and tax trends, see the following page:

The most significant thing I took from that page is that after-tax income over the past 25 years, when adjusted for inflation, has gone up only for the top 20% of Americans. For the other 80%, we are actually making less after taxes than 25 years ago.

I'll also offer a few quotes from the conclusion If you don't read anything else, read the final sentence, which is really the bottom line:

Many "respected" institutions, such as CATO are continuing to present information on taxation and income in a biased and deceptive manner. Many politicians and media pundits, and even financial analysts, are continuing to claim that the tax burden has been increasing on the top 1% of tax payers. Politicians often misrepresent information to upper middle class voters telling them that taxes on the wealthy are too high and thus high end taxes need to be cut. This message connects with upper middle class tax payers because they are actually the ones who really have been seeing an increase in the tax burden, but what is not apparent is that that increase has not come from the lower segments of income receivers, it has come from above them from the top 1% of income recipients, whose tax burdens have been pushed it off onto the upper middle class.

The assumption from people in the upper middle class is that if taxes are getting worse for them, then they must be getting even worse for those above them, but this is not the case. The burden is really increasing on those people making between about $60,000 and $150,000 or $200,000 a year, but once you get above that into the $500,000+ a year incomes the tax burden has been greatly reduced over the past 20 years.

I have shown that even the income tax system has been getting less progressive even since 1980, and it was actually much more progressive from the time it was first developed up to 1980. As the income tax system has gotten less progressive over the past 20 years the share of income tax paid by the top 1% has increased. Making the system less progressive will not necessarily decrease the share of income taxes paid by the top 1%. The primary reason that the share of taxes paid by the top 1% has gone up over the past 20 years is because the incomes of those in the top 1% have gone up at a rate much higher than that of other Americans.