Monday, December 17, 2007

It Wasn't a Tax Cut for "The Rich," It Was a Tax Hike

Based on the latest available tax data, no Administration in modern history has done more to pry tax revenue from the wealthy than the current one, says the Wall Street Journal today. Consider:
  • For 2005, the richest 1% paid about 39% of all income taxes that year (see chart above).

  • The richest 5% paid a little less than 60%, and the richest 10% paid 70%.

  • The richest 1.3 million tax-filers -- those Americans with adjusted gross incomes of more than $365,000 in 2005 -- paid more income tax than all of the 66 million American tax filers below the median in income; ten times more.

For the political left and most of the media, this means only that the rich are getting richer. However:

  • The rich showed more rapid gains in reported income shares in the 1990s than in the first half of this decade.

  • The share of the richest 1 percent jumped to 20.8% of total income in 2000, from 14% in 1990, but increased only slightly to 21.2% in 2005.

  • Notably, however, the share of taxes paid by the top 1% has kept climbing this decade -- to 39.4% in 2005, from 37.4% in 2000.

  • The share paid by the top 5% has increased even more rapidly.

In other words, despite the tax reductions of 2001 and 2003, the rich saw their share of taxes paid rise at a faster rate than their share of income. This makes it hard to pin their claim of "rising inequality" on the Bush tax cuts, though the income redistributionists are trying. By this measure, the Clinton years were far worse for "inequality."

Conclusion from the WSJ: "We hate to break up the media's egalitarian chorus with these details, but facts are facts. If Democrats really want to soak the rich, they'll keep tax rates where they are, or, better, lower them some more."



At 12/17/2007 11:46 AM, Anonymous Anonymous said...

I am frankly astounded how often people use the "top 1%" argument.

To get into the top 1%, you need about $325,000 of adjusted gross income. Nice -- but when people say "the rich" is this who they mean?

To get into the top .01% (1 hundredth of a percent), you need AGI of about $10,000,000.

In 2005, there were about 13,776 filers in the top .01% -- they had taxable income over $334 billion (average $24.3 million per filer). Their average effective average tax rate is about 23.4% (which is lower than the average rate for people making $200,000-500,000).

So, Mark -- it all depends on who "the rich" are. To George W and friends, $300,000 is piss-poor. So, quoting statistics about the top 1% is not telling the whole story.

At 12/17/2007 12:16 PM, Anonymous Anonymous said...

Basing tax policy on arbitrary definitions of "rich" is meaningless.

One person's definition of rich is no better and no more valid than another's. It's just an opinion.

At 12/17/2007 1:05 PM, Anonymous Anonymous said...

respose to "holymoly"

typical liberal response...facts mean, if quoting statistics is not telling the whole story..then why don't you tell us what the whole story is...i'm waiting with baited breadth..

At 12/17/2007 1:07 PM, Anonymous Anonymous said...

I thought the "richest 1%" or "richest 5%" in terms of ranking gross income was pretty clear. You can always substitute "top" for rich if it will make you feel better.

At 12/17/2007 1:31 PM, Anonymous Anonymous said...

according to 2005 irs tax data....the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns....
p.s. to holymoly....this is the whole story!!!!!

At 12/17/2007 2:04 PM, Anonymous Anonymous said...

This is a clear example of why we need a flat tax. Do your taxes on a post card.

Everyone pays the same rate.

And everyone pays: no exceptions.

At 12/17/2007 3:46 PM, Anonymous Anonymous said...

...and, i forgot to mention that of the 95% of returns that pay the same total taxes as paid by the 1 %...42% of the 95% have no federal tax liability and approx 25% of the 42% get an "earned income refundable tax credit", in the form of a check!!! seems like these people have no financial obligation to pay for any part of our gov't....what a system!!!

At 12/17/2007 4:58 PM, Anonymous Anonymous said...

If the rich are getting richer faster than the poor or middle class are, it makes perfect sense that the top x% is continuously paying an increasing tax burden. While the amount might be ever-increasing, this says little about the percent of income paid towards taxes.

At 12/17/2007 5:13 PM, Anonymous Anonymous said...

Walt -- you missed the point. Are the top 1% "The Rich"? Of course, they are "richer" than the bottom 99% -- that's obvious. But is the top 1% what Americans think of when they think of "the rich?" I don't think so.

The facts are (gene - this is pointed to you, as you appear not to be able to read the data I presented) that the top .01% have a lower effective tax rate than the remaining individuals in the top 1%. So, combining the whole top 1% together makes it look like "the rich" are paying their fair share -- when the "ultra" rich are actually benefiting from the tax cuts. The whole capital gains tax cut was, IMO, cleverly designed to hide the true tax incidence -- which is on people making big salaries, but comparatively little from passive means (i.e., dividends and cap. gains): the bottom 99/100ths of the top 1%.

At 12/18/2007 8:00 AM, Anonymous Anonymous said...

I didn't miss the point. Rich is a subjective term that has to be defined to have any relevance. The top 1% will always be the top 1%.

At 12/18/2007 9:18 AM, Anonymous Anonymous said...

to holymoly....i read your comments very carefully...with all due respects, it's not clear what your talking about...why don't you state in simple language the point or points you are trying to make...your worried about the ultra rich not paying their share...your worried about the capital gains tax being cleverly designed (it should be eliminated entirely)... etc...etc...and by the way who creates businesses and jobs and pay's most of the gov'ts spending....don't tell me about effective taxes and all that other nonsense....

At 12/18/2007 10:27 AM, Anonymous Anonymous said...

walt g. said:

"The top 1% will always be the top 1%."


The objective of many seems to be to punish those people who comprise the 1% or .01% or whatever number they decide fits their world view - for whatever reason they want to come up with.

Their message being: "Go to school, study hard, work hard, build a business, take a risk, sacrifice, save your money, invest, become successful, so we can punish you because you won't deserve the fruits of your honest labor."

At 12/18/2007 10:43 AM, Anonymous Anonymous said...

Why is everybody trying to define "rich" based on income rather than looking at assets?

Taxing income is punishment for working. Taxes should be based on assets or consumption but not on labor!

Want to "soak the rich"? Tax consumption!

At 12/18/2007 11:16 AM, Anonymous Anonymous said...

There are lies, damn lies and statistics. If the Bush tax cuts are soaking wealthy taxpayers so badly, why aren't influential taxpayers lobbying to return to Clinton era tax schedules?

The actual tax burden on the top earners has hardly changed - they are paying more in taxes because they are earning more as a group and because the group itself is getting larger (at the expense of the middle class, which is shrinking).

Year Percentile % Taxes
Per Percentile

1990 1% 1.7857%
2000 1% 1.7619%
2005 1% 1.8571%

1990 5% 1.6296%
2000 5% 1.6000%
2005 5% 1.6667%

Likewise, dividends and reported capital gains have increased dramatically since 2003, but the article 1) offers no objective evidence to show that the tax cuts affected this; and 2) completely ignores that March, 2003 represented the bottom of the lingering effects of the bubble-burst, the 2001 recession and 9/11. Of course dividends and capital gains have gone up dramatically since then.

At 12/18/2007 12:01 PM, Anonymous Anonymous said...

The top 1% pay a larger share because their INCOME has skyrocketed -- 46% higher in a few short years while the bottom fifth saw a 1% increase.

You're missing the forest through the trees.

I recommend you stop blogging and start reading and thinking more.

At 12/18/2007 12:23 PM, Anonymous Anonymous said...

Forget taxes.

Multi-generational-low 1% interest rates inflated asset valuations across the board. Who owns assets? The top 1% owns about half. So, who do you think started paying more taxes? The top 1%!

The top 1% started paying more taxes because they started "earning" more money. And, to go along with this windfall, they got to pay less taxes than they otherwise would've were it *not* for the tax cuts.

Got it?

Think about it, people. And, if you agree, then maybe you'll conclude this blog's not cutting it and you should go find another one with more insight.

At 12/18/2007 1:34 PM, Anonymous Anonymous said...

all you guys are commenting on who pays the anyone interested in the stats on who the gov't spends it on...well here it is...if you group the households tax filers into 5 equal quintiles..this is what you see..
households in the bottom 20% quintile receive $14.76 of federal spending per dollar of federal taxes, compared to $0.32 for the top 20% quintile. in the aggregate, households in the top two income quintiles pay roughly $1.031 trillion ddollars more in total taxes than they receive in gov't spending. in contrast, housholds in the bottom three quintiles receive roughly $1.527 trillion more in in gov't spending than they pay in before you keep bashing people who pay the bills...get the full story

At 12/18/2007 2:35 PM, Anonymous Anonymous said...

Anon @ 1:34 --

I call shenanigans. Tell me how those figures were derived! I bet you dollars to doornails that your figures are only refereing to direct transfers and expenditures.

How in the heck does it capture the returns that the "ownership society" enjoys because their capital operates in a society with a functioning infrastructure, an educated workforce and an effective legal system (all supported by tax dollars)?

At 12/18/2007 2:44 PM, Anonymous Anonymous said...

"The top 1% pay a larger share because their INCOME has skyrocketed -- 46% higher in a few short years while the bottom fifth saw a 1% increase."

So they are contributing 46% more to our economy - That's a good reason to fine them more?

At 12/18/2007 4:21 PM, Anonymous Anonymous said...

to the steptical holymoly....
it's a bet!!!
my source is a tx foundation study...go to 33 and 34....
sounds like your the type of guy that would argue with this research, so it's hopeless trying to convince you

At 12/19/2007 11:44 AM, Blogger Colin said...

"How in the heck does it capture the returns that the "ownership society" enjoys because their capital operates in a society with a functioning infrastructure, an educated workforce and an effective legal system (all supported by tax dollars)?"

If only our government stuck to providing such basics...


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