The rich are already paying their fair share

Bruce Bartlett
|
Posted: Jul 10, 2003 12:00 AM

On June 26, readers of The New York Times saw this headline at the top of page one: "Very Richest's Share of Income Grew Even Bigger, Data Show." One would have thought that important news was being broken. But in fact, the reporter, Pulitzer Prize winner David Cay Johnston, writes virtually the same article annually. On Feb. 7, 2002, and Feb, 26, 2001, he said almost exactly the same thing.

You see, the Internal Revenue Service is required by law to produce data on taxes paid by the richest Americans. So whenever this data is ready for release, some friendly bureaucrat at the IRS lets Johnston have an advance look. The IRS knows from experience that it will get big play in the Times, which always hypes every nugget of information showing the rich getting richer during Republican administrations. It is ignored or buried on the back pages during Democratic administrations.

This year, the IRS did something a little different. Normally, it reports data for those with incomes above $200,000. However, this time it singled out the richest 400 Americans for special scrutiny. It said that the new data was "in response to requests," but gave no indication of where these "requests" came from. I doubt that they came from Republicans. One wonders, also, why it chose the top 400 for analysis? Perhaps it is because Forbes Magazine has annually calculated the 400 richest Americans for some years.

Whatever the reason, it was grist for the liberal Times. It is doubtful that very many readers inspected the article carefully enough to realize that the data only went through 2000, when Bill Clinton was still president. The obvious implication of the headline was that the Bush tax cuts somehow created this result, also implied by the notes accompanying the charts on page one: "The average income of the top 400 taxpayers grew steadily ... while they paid less of their income in taxes."

The average tax rate on the top 400 peaked in 1995 and fell thereafter. According to the Times, the lower effective rates resulted primarily from lower taxes on capital gains and increased gifts to charities by the wealthy. But the capital gains tax didn't fall until 1997 and we want more charitable contributions. It is disingenuous to praise such gifts, as the Times often does, while condemning the fact that this necessarily lowers one's taxable income. Why one should be taxed on income one has given away to a church, hospital or university is left unanswered, although it is implied that this is wrong because it lowers one's tax liability.

Those reading only the front page of the Times story missed the qualification that many more than 400 people occupied the top 400 list during the 9 years. In fact, according to research by Congress' Joint Economic Committee, 2,218 taxpayers were on the list at some point during the period. Amazingly, three-fourths were among the top 400 for just one year and 87 percent were on the list for 2 years or less. Less than 1 percent made the cut every year.

In short, there is substantial mobility in and out of the ranks of the very wealthy, a fact documented by Forbes in its annual survey. According to a recent study by the Federal Reserve Bank of Boston, between 1988 and 1998, 47 percent of those in the lowest income quintile rose to a higher quintile, and 47 percent of those in the top quintile fell to a lower one.

Furthermore, although the average tax rate on the top 400 fell, one has to go to the original IRS report to discover that their share of total income taxes paid rose by 50 percent, from 1.04 percent in 1992 to 1.58 percent in 2000. In other words, the richest of the rich paid more and everyone else paid less.

This information is not surprising to those who know that the top 1 percent of taxpayers have increased their tax share almost annually, from 19 percent in 1980 to 27 percent in 1988, despite the Reagan tax cuts, and to 37 percent in 2000. Interestingly, the same pattern holds in other countries. In the United Kingdom, the top 1 percent of taxpayers paid 23 percent of income taxes this year. In Canada, the top 1 percent paid 24 percent in 2001. In Australia, the top 5 percent of taxpayers paid 27 percent of income taxes in 2000.

In all countries for which I can find data, the percentage of taxes paid by the rich is rising. Yet this fact does nothing to diminish demands that they pay even more.

Personally, I am happy to be paying less taxes because people much wealthier than me are carrying so much of the load. They deserve gratitude, not derision.