Wealth, Taxes And Politics
With the elections upon us, we are being bombarded by the left with the same old tired line: The Bush policies have produced “a disappointing decade on inequality.” In looking at the figures, one may be surprised to learn that “the Bush years compare very well by tax and income equality to the sainted Clinton era.”
First, the new data show that the bottom 50% of Americans in income–U.S. households with an income below the median of $44,389–paid a smaller share of total income taxes in 2004 (3.3%) than in Bill Clinton’s last year in office (3.9%). That 3.3% is the lowest share of total income taxes paid by the bottom half of earners in at least 30 years, and probably ever. The majority of American families with an income below $40,000 pay no income tax at all today, and many of them also get a welfare subsidy from the Earned Income Tax Credit that effectively offsets much of what they pay in payroll taxes.
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.
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%.
The decline in the share of total income earned was even more pronounced when we look at the income shares of the top 0.1%; they earned a greater share (18.9%) of total income by the end of the Clinton era than they did in 2004 (17.4%). Some of this can be explained by the 2001 recession and subsequent strong economic expansion. The rich got socked hardest when the stock market plunged, though the dramatic income and wealth gains in the last three years are again raising income shares of the middle and upper income groups. The income share earned by the rich was still lower in 2004 than during Mr. Sperling’s decade of allegedly “shared prosperity.”
Just this week, many on the left were citing this report as proof that we are going backwards.
The new Census figures show “the gap between the richest and poorest Americans widened last year.” “What have been missing,” the New York Times explains, are policies “like strong support for public education, a progressive income tax, affordable health care, a higher minimum wage and other labor protections.”
What was omitted in the reporting is that the data was collected via surveys, via the Brookings Institute. As was pointed out in the New York Times:
The new data on income and employment were collected separately, in the Current Population Survey and the new American Community Survey, and the Census Bureau cautioned against extended comparisons and analyses with surveys from earlier years. That left even more latitude than usual for interpretation and ambiguity.
It is amazing what a little bit of truth can add to a picture.
September 2, 2006 - 02:46 PM on September 2nd, 2006
Make the KENNEDYS,GORES,and all those hollywood demacratic supporters pay 75% of the taxes its only fair:razz: