For many years, the Tax Foundation has published figures on shares of federal income taxes paid by percentiles of income. They always showed those at the top of the income distribution paying an overwhelming share of all taxes. This was powerful refutation of the traditional liberal argument that the rich don't pay their fair share.
These data went mostly unnoticed until 1978, when Paul Craig Roberts, then working for Sen. Orrin Hatch, R-Utah, published an article about them in the March issue of Harper's Magazine. Back then, Harper's was a highly respected publication -- it has since gone downhill -- and his article got a lot of attention.
Roberts showed that the top 1 percent of taxpayers -- those earning more than $59,338 in 1975 -- paid 18.7 percent of all federal income taxes, up from 17.7 percent 5 years earlier. A similar increase was shown by the top 5 percent, top 10 percent and top 25 percent of taxpayers. The top half of taxpayers paid 92.9 percent of all income taxes in 1975, meaning that the bottom 50 percent paid just 7.1 percent.
Interestingly, the reaction of liberals to the Roberts article was to deny it. They simply refused to believe that the data were correct. House Majority Leader Jim Wright, D-Tex., was especially incredulous. He demanded that the Congressional Research Service give him the correct data.
The CRS response was written by Donald Kiefer, now head of the Treasury's Office of Tax Analysis. Although quibbling with some of Roberts' interpretations, he confirmed that the data were accurate. He had little choice because the original figures came straight from the Internal Revenue Service's statistics of income report.
In the years since, the annual publication of the IRS's tax shares data has been eagerly awaited by those opposed to class envy. The most recent figures became available on Jan. 10 and were released by the Joint Economic Committee of Congress. Amazingly, they show that the share of total federal income taxes paid by the top 1 percent of taxpayers has doubled since 1975. In 1999, they paid 36.2 percent versus 18.7 percent in 1975, the latest available when Roberts wrote his article.
Other upper-income groups have also seen a sharp increases in their share of the tax burden. Between 1975 and 1999, the top 5 percent of taxpayers went from 36.6 percent to 55.5 percent of taxes, the top 10 percent went from 48.7 percent to 66.5 percent, the top 25 percent went from 72 percent to 83.5 percent, and the top half of taxpayers went from 92.9 percent to 96 percent. The bottom 50 percent of taxpayers now pay just 4 percent of federal incomes taxes.
To put these numbers into perspective, it should be noted that the top 1 percent of taxpayers reported just 19.5 percent of adjusted gross income. Thus, their share of the tax burden exceeded their income share by almost 17 percentage points. For the top 5 percent, the spread was even greater -- more than 21 percentage points. By contrast, for those in the bottom 50 percent, the difference between the percentage of total taxes and total income was minus 9.25 percent. That is, their income share greatly exceeded their tax share.
On a chart, these data form a kind of "yield curve." For economists, the yield curve measures the spread between short-term interest rates, which are normally low, and long-term rates, which are normally higher. The slope of this curve is an important indicator of monetary policy and future economic conditions. A tax yield curve would show how steeply progressive federal income taxes are.
Those in the top 1 percent of the income distribution paid a 27.5 percent effective income tax rate in 1999. Polls show that this exceeds the highest percentage of taxation that most Americans believe anyone should pay, no matter how large their income. The latest, a Fox News/Opinion Dynamics poll taken in March 2001, found that a majority of Americans think 20 percent is the most anyone should pay.
However, polls also show most people greatly underestimate how much the rich actually pay. That is why liberals usually get a receptive audience when they say that the rich aren't paying their fair share and should be denied the benefits of any tax cuts. One study found that most people think that the rich don't pay more than 20 percent now.
For these reasons, greater knowledge about how much the wealthy actually pay in taxes is a powerful antidote to class warfare. Most Americans are fair-minded and don't envy those with incomes higher than they have. But if they are misled about the facts, they can make mistakes and vote for demagogues who hate the rich simply because they are rich.