(Ron Knecht) – President Joe Biden has whispered into public microphones a few times recently that the wealthy should “pay their fair share” of federal taxes.
And what share would that be, Mr. President?
Of course, he doesn’t say what it should be. Nor even gives a hint of what their shares are now. That’s normal, though. When people say the rich should pay their fair share, they really mean we should increase taxes on those folks regardless of what their rates now are.
So, I’ll provide facts and data on those rates, as I’ve done in the past. The Tax Foundation (TF), using the official statistics from the Internal Revenue Service, has published the key data for 2018, the latest year for which tax data are available. TF summarizes: “the U.S. individual income tax continued to be progressive, borne primarily by the highest income earners.”
As the details show, that’s an understatement. The individual income tax was highly progressive by 2001 and has gotten distinctly more so this century. Even after the 2017 tax cuts passed by President Donald Trump and Congress in 2017, “average tax rates fell across every income group.” And proportionately, they fell more for the lower income groups than the higher ones.
Here are the specifics. The top one percent of earners (those earning more than $540,009 adjusted gross income) paid 33.2 percent of total taxes in 2001, but that rose to 40.1 percent, its highest level this century, in 2018. The proportion paid by folks between one percent and ten percent of income earners rose slightly. However, all folks below that top ten percent paid less of the total than the top decile each of those 17 years. In fact, the amount paid by the bottom half of income earners (earning less than $43,614) declined most: from 4.9 percent to 2.9 percent.
The tax share paid by the top one percent of earners, 40.1 percent, exceeded greatly the share paid by the bottom 90 percent combined, 28.6 percent. And the top one percent paid a 25.4 percent average income tax rate, while the bottom 50 percent paid one-seventh that rate, 3.4 percent. Across the scale, as income increases, the tax rate paid increases substantially.
Now, what was that, Mr. President, about people paying their fair share? Warren Buffet may trumpet (brag or complain) that he pays a lower rate than his secretary, but that’s only an anecdote. When you look at the full range of data, Mr. Buffet’s story is highly unrepresentative of the central facts.
Perhaps someone will answer that the rich have taken an ever greater share of income and that caused their tax contributions to rise. As explained below, that’s not true, either, because the income share of the top one percent has fluctuated with business cycles. The high point for the income of the top one percent of earners as a share of the total was in 2007, at nearly 23 percent.
In 2018, rich folks’ share of income fell to 20.9 percent from 21 percent the year before. But their share of federal income taxes in that same year rose from 38.5 percent to 41 percent. So, even the Trump tax cuts were highly progressive, contrary to claims of their opponents.
In sum, the rich – the top ten percent by income – paid 71.4 percent of total taxes, while everybody else – the bottom 90 percent, including the upper middle class – paid only 28.6 percent. Thus, the rich ten percent of the population paid 22.5 times as much of the total tax bill each as the bottom 90 percent of earners. Is 22.5-to-1 fair?
Two final points. The level of per-capita government transfer payments, as a share of U.S. median personal income, is nearly three times as high now as in 1974. Taxing the rich has led to very high subsidies for many others.
Second, as summarized in a recent extensive analysis by Scott Lincicome, “Whether it’s income, ‘labor share,’ or wealth, numerous studies by respected academics rebut the scary headlines and beltway conventional wisdom about rampant inequality in the United States. … the increase in inequality since the Good Old Days … has been, at best, non-existent and at worst, moderate …”