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.
For example,
according to Her Majesty's Revenue and Customs, the share of total
income taxes paid by the top 1 percent of taxpayers was 11 percent
in the United Kingdom in 1979, when the top income tax rate was
83 percent. Prime Minister Margaret Thatcher cut that rate to
60 percent, and by 1987 the share of income taxes paid by the
top 1 percent had risen to 14 percent. The top rate was cut again
to 40 percent, where it still stands, and the share of income
taxes paid by the top 1 percent continued rising to a current
level of 21 percent.
Statistics
Canada recently released a study looking at tax shares in that
country. It shows that the share of federal income taxes paid
by the top 10 percent of taxpayers reached 52.6 percent in 2002
-- almost exactly the same as is paid by the top 10 percent in
the United Kingdom. However, the top income tax rate in Canada
is just 29 percent. (Provincial tax rates in Canada are very substantially
higher than among U.S. states.)
Finally,
we now have data for Australia from the Australian Taxation Office.
In 2003, they show the top 5 percent of taxpayers paying 30.2
percent of all income taxes, the top 10 percent paying 41.8 percent,
and the top 25 percent paying 63.8 percent. But the top income
tax rate in Australia is 47 percent. Thus we see that the country
with the highest top rate also brings in the least amount of total
income tax revenue from its richest citizens in percentage terms.
At some
point, those on the left must decide what really matters to them
-- the appearance of soaking the rich by imposing high statutory
tax rates that may cause actual tax payments by the wealthy to
fall, or lower rates that may bring in more revenue that can pay
for government programs to aid the poor? Sadly, the left nearly
always votes for appearances over reality, favoring high rates
that bring in little revenue even when lower rates would bring
in more.
