02 September 2006

Soak the Rich!

One of my "progressive" relatives wrote to me earlier this year, asking, among other things, why those wealthy individuals who were financially benefitting from the war in Iraq were not willing to pay their fair share of the costs, since the Bush tax cuts had shifted the burden onto the poorest in society.

Today's WSJ has an editorial that cites a new IRS report on income and taxes. The editorial then compares them with the more "progressive" years of the Clinton administration. Here is the nub:

By contrast, Americans with an income in the top 1% paid 36.9% of all federal income taxes in 2004, down slightly from 37.4% at what was the height of the dot-com boom in 2000. But the top 5% and 10% of earners saw an increase in their tax share over that same period, with the top 5%'s share rising to 57.1% in 2004 from 56.5% in 2000. If this isn't the definition of a highly "progressive," a k a redistributionist, tax code, we don't know what is.

Especially instructive is what has happened to tax shares since the tax rate on capital gains and dividends was cut to 15% in 2003. These investment tax cuts have corresponded with a huge spike in tax payments by the affluent. Between 2002 and 2004, the income tax share of the top 0.1% of earners rose to 17.4% from 15.4%. A reasonable conclusion is that much of this increase reflects tax payments on capital gains and dividends--which have soared by an astounding 79% and 35%, respectively, since the rate cuts.

Democrats and their media pals dismiss all this by saying that the richest are paying more taxes because they're making out like bandits in the Bush years. Former Clinton economic adviser Gene Sperling grouses that the 1990s were "an era of shared prosperity," but that the Bush policies have produced "a disappointing decade on inequality."

The new IRS report contradicts that fairy tale too. Let's use the left's own definition of fairness and examine the actual new IRS evidence (see chart). During the Clinton Presidency, the share of total income earned by the richest 1% increased to a post-World War II high of 20.8% in 2000, from 13.8% in 1993. By contrast, in the first four years of the Bush Presidency, the income share of the top 1% fell slightly, to 19.0% from 20.8%.

Looks like a pretty fair distribution to me.

1 comment:

Rich Whiteman said...

I know this isn't a recent post, but I ran across it and had a couple of questions/points to make.

First of all, what exactly is the conclusion you're drawing? That the top 1% is not doing as well now than they were during the Clinton presidency? Or that they are paying a higher tax rate now than then?

I don't think that Clinton supporters are trying to say that the richest 1% earned less money, I think they are saying that they generally paid a higher tax rate then than now. I'm not sure how the President could control how much money people make, but they can have a say in how much they pay in taxes.

And remember, there's a big difference between a wealthy (top 1%) person's tax rate (as an individual) and the entire share of taxes paid by the top 1% in general. Know what I mean?

I'm just not exactly sure what it is you're trying say. Just thought I'd mention that.

Another Loony Liberal