Bruce Bartlett

Just in time for tax season, the Congressional Budget Office has released new data on distribution of the tax burden. Contrary to popular belief, they show that taxes on the wealthy have risen over time and that the Bush tax cut in 2001 barely kept it from rising further.

 A convenient starting point is 1984. The Reagan tax cut was then fully phased in (which reduced the top statutory income tax rate from 70 percent to 50 percent) and the 1983 Social Security tax increase had already taken effect (which raised the OASI tax rate from a combined 9.5 percent to 10.4 percent). In that year, those in the bottom quintile (20 percent of households) paid an average federal tax rate (individual, payroll, corporate and excise) of 10.2 percent.

 Those in the top quintile paid 24.5 percent, the top 10 percent paid 25.2 percent, the top 5 percent paid 26.1 percent, and the top 1 percent paid 28.2 percent. Thus, those at the top paid about two and a half times more than those at the bottom.

 Fast forward to 2001 (latest year in the CBO study). The top statutory income tax rate has fallen to 39.1 percent, and the total payroll tax rate has risen from 14 percent to 15.3 percent. If one knew these figures in 1984, almost all economists would have projected a sharp decline in taxes paid by the rich and an increase in those paid by the poor.

 In fact, the data show that those in the bottom quintile are only paying about half what they did 20 years ago: 5.4 percent. This is down from 6.4 percent just the year before, owing to the Bush tax cut.

 Those in the top quintile did pay a little less in 2001 than they did in 2000: 26.8 percent versus 28 percent. But this is still well above the average tax rate they paid in 1984. Interestingly, those at the very top saw virtually no cut at all, even though liberals constantly say that they got the lion's share of the 2001 tax cut. Between 2000 and 2001, those in the top 10 percent of households saw a drop from 29.7 percent to 28.6 percent, and those in the top 5 percent saw a decline from 31.1 percent to 30.1, but those in the top 1 percent saw their effective tax rate virtually unchanged: 33.2 percent versus 33 percent.

 All of those in the middle three quintiles paid less in 2001 than they paid in 1984. In other words, between 1984 and 2001 average tax rates for the wealthy substantially increased, while at least 80 percent of households paid considerably less. Progressivity rose as the wealthy now pay about six times more than the poor.


Bruce Bartlett

Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.

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