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Commentary | JONATHAN CHAIT

A Very Special Kind of Math

Once again, the Wall Street Journal plops down numbers in arguing that the rich pay too much in taxes. Do figures lie or do liars figure?

April 29, 2005|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 Wall Street Journal editorial this week cites a recent IRS study detailing which income groups pay what level of taxes. The editors note with satisfaction that the highest-earning 0.1% of the population paid 5.06% of the federal tax burden in 1979, and was paying 9.52% 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% 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% took home about 3% of the national income, and paid about 5% of the taxes. In 1999, they earned about 10% of the national income and paid about 11% of the taxes.

In fact, the tax rate borne by the very rich has plummeted. In 1979, the top 0.1% paid, on average, 32% of their income in taxes. Today, they pay less than 23%. So what's happening is that the top 0.1% 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 may 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? I can tell you, as a regular reader of that page, 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% 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%, while the share of the highest quintile was 60.2%. 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% of their income in federal taxes, while those in the top 1% pay about 25%. 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% pay around 33% of their income in taxes, while the bottom 99% pay 29.7% 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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