A few weeks ago, the Internal Revenue Service released data on tax year 2003. They show that the top 1 percent of taxpayers, ranked by adjusted gross income, paid 34.3 percent of all federal income taxes that year. The top 5 percent paid 54.4 percent, the top 10 percent paid 65.8 percent, and the top quarter of taxpayers paid 83.9 percent.
Not only are these data interesting on their own, but looking at them over time shows that the share of total income taxes paid by the wealthy has risen even as statutory tax rates have fallen sharply. A growing body of international data shows the same trend.
On the first point, we see that in 1980, when the top statutory income tax rate went up to 70 percent, the share of income taxes paid by the top 1 percent of taxpayers was just 19.3 percent. After Ronald Reagan's tax cut of 1981, which reduced the top rate to 50 percent -- a massive give-away to the wealthy according to those on the left -- the percentage of income taxes paid by the top 1 percent rose steadily.
By 1986, the top 1 percent's share of all federal income taxes rose to 25.7 percent. That year, the top statutory tax rate was further cut to 28 percent -- another huge-give-away, we were told. Yet the share of income taxes paid by the top 1 percent continued to rise. By 1992, it was up to 27.5 percent.
Of course, it would be a mistake to conclude that tax increases will not raise the wealthy's tax share or that tax rate cuts always will. Nevertheless, it is remarkable that the percentage of federal income taxes paid by the top 1 percent of taxpayers almost doubled during a time when the top income tax rate fell by half.
A common liberal retort to these data is that they exclude payroll taxes, which are assumed to be largely paid by the poor. However, it turns out that when one includes payroll taxes in the calculations, it has far less impact on the distribution of the tax burden than most people would assume, because the wealthy also pay a lot of those taxes, too.
In a 2004 paper presented to the American Statistical Association, IRS economists Michael Strudler and Tom Petska calculated percentiles data that included both income taxes and Social Security taxes. In 1999, the top 1 percent paid 23.3 percent of combined payroll and income taxes, the top 10 percent paid 52.2 percent, and the top 20 percent paid 68.2 percent.
In recent years, a number of foreign countries have also started publishing tax shares data. They show the same trend of higher and higher burdens on the wealthy even when tax rates are cut sharply.
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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