Who pays the taxes

Bruce Bartlett
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Posted: Oct 19, 2004 12:00 AM

Last week, the Internal Revenue Service released data on distribution of the income tax burden in 2002. They put a lie to John Kerry's contention that the rich are not paying their fair share and should be taxed more.

 The IRS data divide taxpayers into percentiles according to their adjusted gross incomes. Following is the share of aggregate income taxes paid by each group:

 Income Group ---- Tax Share
 Top 1 percent ---- 33.7 percent
 Top 5 percent ---- 53.8 percent
 Top 10 percent ---- 65.7 percent
 Top 25 percent ---- 83.9 percent
 Top 50 percent ---- 96.5 percent

 The data also reveal that despite the Bush tax cuts, the income tax is still highly progressive -- taking more from each group as their incomes rise. The following percentages measure the taxes paid by each group divided by their income. Economists call this the average or effective tax rate.

 Income Group ---- Tax Rate
 Top 1 percent ---- 27.25 percent
 Top 5 percent ---- 22.95 percent
 Top 10 percent ---- 20.51 percent
 Top 25 percent ---- 16.99 percent
 Top 50 percent ---- 14.66 percent
 Bottom 50 percent ----  3.21 percent

 Finally, the data show that the rich are not only paying tax rates as high as they were during the Clinton administration, eve after large tax cuts in 2001 and 2002, but they are doing so even as their incomes have fallen. The aggregate income of the top 1 percent was down 26 percent between 2000 and 2002. In 2000, the income threshold for getting into the top 1 percent was $313,469. By 2002, that figure had fallen to $285,424, reflecting the slow economy and weak stock market.

 This doesn't mean we should shed tears for the rich. They're still doing pretty well. But these data raise serious questions about Kerry's class warfare agenda. How much more taxes does he think rich people should pay?

 Poll data suggest that the wealthy are already paying more than the bulk of Americans think they should. A Zogby poll last year asked people what a fair tax rate would be for a person making $1 million per year -- an income that would put someone in the top tenth of the top 1 percent of taxpayers. Seventeen percent of Americans said that 10 percent was the most he should pay and 29 percent said that 20 percent was the maximum.

 In other words, 46 percent of the American people think that millionaires today are already overtaxed, paying about 28 percent of their income to the federal government when 20 percent is the most they ought to pay. Only 21 percent of people in the survey agreed with Kerry that tax rates should be higher than 30 percent.

 Lest one think that this is an isolated result, there are other polls with similar findings. A 2001 Fox News poll asked people what the highest percentage of taxes anyone should have to pay is. Fifty-two percent said 20 percent was the most anyone should pay. Only 9 percent of people favored rates above 30 percent. Another Fox News poll in 1999 found 65 percent of people saying that 20 percent should be the maximum tax rate.

 One possible reason for these results is that people think taxes are a lot higher than they really are. According to a new study by economists Alan Blinder and Alan Krueger, when asked for the current tax rate on a typical family, the average response was 31.3 percent. The Census Bureau says the correct answer is 23.4 percent. In 2002, the average household's income was $57,852 and it paid $13,529 in taxes.

 This overestimation of the tax burden on the middle class may help explain why it has supported the Bush tax cuts despite a constant drumbeat of media reports saying that only the rich have benefited. A Prinecton University study recently concluded that people are basically irrational for favoring tax cuts for the rich at the same time that they believe inequality is a growing problem.

 A better explanation is that many Americans think they have a chance of becoming rich some day. A Gallup poll last year found that 31 percent of Americans thought they would become rich. Among those between the ages of 18 and 29, the figure jumped to 51 percent.

 For this reason, even sophisticated leftists recognize that class warfare is a non-starter in American politics. As columnist Bob Kuttner recently put it, "Because nearly everyone identifies upward, you don't gain traction in American progressive politics by baiting the rich." Mark Penn, Bill Clinton's pollster, put it this way: "The more government tries to monkey with income distribution, the more people dislike it."

 Kerry should have listened to them.