The Latest News on Tax Fairness
A new Congressional Budget Office reports shows the share of
taxes paid by the top 20% has gone up over the last 30 years, while the share of
taxes paid by everyone else has gone down.
If fairness in paying taxes means the amount you pay is based on the amount
you make, then the only group in America paying at least a "fair share" is the
top 20%—people who make more than $74,000. For everyone else, the tax code is a
bargain.
You wouldn't know this from President Obama's rhetoric, but our tax system,
according to a recent report by the Congressional Budget Office (CBO), is
incredibly progressive. Consider: The top 1% of income earners pay an average
federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate
on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and
$73,999 pay an average 15.1%, and so on down the line. The CBO report includes
payroll as well as income taxes paid.
There's also another way of looking at fairness, and that's the tax burden.
Here, consider the top 20% of income earners (over $74,000). They make 50% of
the nation's income but pay nearly 70% of all federal taxes.
Yet President Obama says that "for some time now, when compared to the middle
class," the wealthy "haven't been asked to do their fair share."
He's right that the system isn't fair, but not because the top 1% pay too
little. It is because they pay too much.
Mr. Obama has said that some wealthy employers pay a lower tax rate than
their secretaries. True, some are able to lower their effective federal tax rate
by giving millions to charity. Or because they derive much of their income as
capital gains or from tax-free municipal bonds.
But middle- and low-income Americans who do not invest also pay lower rates
thanks to the deductions they receive, such as a $1,000 per child tax credit
(which phases out for couples who make more than $110,000), or the Earned Income
Tax Credit, which no one making more than $50,000 is supposed to receive.
The CBO report ("The Distribution of Household Income and Federal Taxes, 2008
and 2009") covers the years 1979-2009. It makes plain that the impression
conveyed by the president about what upper-income Americans pay in taxes does
not hold up to scrutiny.
First of all, the share of taxes paid by the top 20% has gone up over the
last 30 years, while the share of taxes paid by everyone else has gone down. It
has gone up despite the tax cuts enacted by President Clinton in 1997 and by
President Bush in 2001 and 2003. But that makes no difference to the president.
The only group of taxpayers he calls on to "sacrifice" are those already doing
all the tax sacrificing.
The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all
federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income
and their share of federal taxes paid had jumped to 67.9%.
And the top 1%? In 1979, this group earned 8.9% of the nation's income and
paid 14.2% of all federal taxes. In 2009, they earned 13.4% of the nation's
income but their share of the federal tax burden rose to 22.3%.
Meanwhile, the federal tax burden on middle- and lower-income earners is
lighter. In 1979, the bottom 20% paid barely any taxes at all, just 2.1%. Now
their share of taxes is a minuscule 0.3%. The burden on the middle-income
earners ($34,900 to $50,100) has dropped too. In 1979, they paid 13.6% of all
federal taxes; in 2009 they paid 9.4%.
One reason our country is so divided is because the president keeps dividing
us. If taxes need to be raised to fight a war or fund a cause, the president
should ask everyone to pitch in. If the need is national, the solution should be
national—and that includes all of us.
But that's not how Mr. Obama governs. We learned during the 2008 campaign
that he believes in spreading the wealth around. And recently we learned he
doesn't believe that successful people made it on their own.
Without the
government, the president tells us, job creators and entrepreneurs would not be
able to make it in America.
It's really the other way around. Without job creators and the successful,
the government wouldn't have any money. So next time Mr. Obama meets someone in
the top 1% or even the top 20%, instead of saying they're not paying their fair
share, he should simply say thank you.
Mr. Fleischer, a former press secretary for President George W. Bush, is
president of Ari Fleischer Communications.
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