October
11, 2005
Realities of the Tax Burden
By Bruce
Bartlett
In its
corporate wisdom, The New York Times recently decided
to hide its most influential columnists behind a subscription
wall. Now, those who have been accustomed to reading the likes
of Paul Krugman and Maureen Dowd for free on the Internet will
have to pay $50 per year for the privilege.
To make
this proposition more attractive, the Times promised
that it would provide a little something extra for subscribers.
Apparently, this involves publishing articles by its editorial
writers that are not good enough to appear in the print edition
of the paper.
The first
of these deals with taxation and appeared on Oct. 4. It was written
by Times editorial board member Teresa Tritch, who writes
most of the paper's economic editorials. She lists her qualifications
as having degrees in German and journalism, as well as years writing
about personal finance for Money magazine -- explaining
why people should shop around for the lowest price before buying
soap, and things of that sort.
Article
Continues Below
What really qualifies
Tritch to lecture the rest of us about tax policy is an absolute
conviction that our tax system is tilted too much toward the rich.
To read her diatribe, one would think that the wealthy pay no
taxes at all and that the tax burden falls almost entirely on
the poor and middle classes. One would also come away thinking
that taxes do not affect economic growth in any way.
According
to Tritch, our tax system should serve one purpose and one purpose
only -- to soak the rich. Any reduction in tax rates, especially
on saving and investment, has nothing to do with raising growth,
but is nothing but a give-away to the ultra-wealthy. One can see
now why she was hired by the Times despite a paucity
of knowledge or experience in the field of economics.
The reality is that
the wealthy pay almost all of the federal income tax, and there
is clear and compelling evidence that our tax system -- especially
its misguided redistributive elements -- imposes a heavy cost
in terms of growth that is ultimately paid by the non-wealthy
in the form of lower productivity and, hence, lower wages and
incomes.
Interestingly, the
latest Internal Revenue Service data on distribution of the tax
burden were released the same day Tritch's tirade appeared. They
show that the top 1 percent of taxpayers paid 34.3 percent of
all federal income taxes in 2003, although they earned just 16.8
percent of the adjusted gross income. The top 5 percent of taxpayers
paid more than half of all federal income taxes, the top 10 percent
paid two-thirds, and the top half of taxpayers paid 96.5 percent,
meaning that the bottom half paid just 3.5 percent.
Another IRS report
decomposed the top 1 percent and found that the top 10 percent
of the top 1 percent (the top 0.1 percent) increased its share
of all federal income taxes from 7 percent in 1980 to 15.3 percent
in 2003. These 129,000 tax filers earned 7.6 percent of the income
and paid an average tax rate of 23.6 percent. This came to $114.6
billion -- four times more than all the taxes paid by the 64 million
taxpayers in the bottom 50 percent -- who paid an average tax
rate of 2.9 percent.
I would be curious
to know just how much more Tritch thinks the wealthy ought to
be paying. Back in the good old days (from her point of view)
when Jimmy Carter was president and the top statutory tax rate
was 70 percent (versus 35 percent today), the top 1 percent of
taxpayers paid only 19.7 percent of all federal income taxes.
In other words, although their marginal tax rate has fallen by
50 percent, their tax share has almost doubled.
I assume that Tritch
would be happier with the British tax system, where the top income
tax rate is 40 percent. But according to British tax data, the
top 1 percent of taxpayers there pay just 21 percent of income
taxes. The top 5 percent pay 40 percent, and the top 10 percent
pay 52 percent. The bottom 50 percent pay 11 percent of all income
taxes. In other words, wealthy British pay higher rates -- as
Tritch would have here -- but pay less of the overall tax burden.
According to a new
report from the U.S. Government Accountability Office, we pay
a very heavy price for the heavy taxation of saving, investment,
corporations and estates that Tritch strongly favors. It found
that the efficiency cost of the tax system -- the output that
is lost over and above the tax itself -- is between 2 percent
and 5 percent of the gross domestic product. In short, we lose
between $240 billion and $600 billion every year just because
of the way we raise taxes.
©2005 Creators Syndicate
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