The Jan. 2 Wall Street Journal carries an off-lead by David Wessel, author of the paper’s smart and judicious “Capital” column, looking at the debate about whether the federal income tax is too progressive. Wessel doesn’t address the argument (made by a now-famous editorial from the Nov. 20 Journal and, before that, by Rep. Jim DeMint) that forcing poor people to pay higher taxes would be a social good in and of itself. (To learn why this is not so, click here and here. If you’re still not convinced, the New Republic’s Jonathan Chait weighs against the idea here; Citizens for Tax Justice, a labor-funded nonprofit research group, here; and the New York Times’ Paul Krugman, here.)
Chatterbox, who has been following the “tax the poor” meme since the Journal editorial appeared, is disappointed by Wessel’s omission. As Chatterbox noted a couple of weeks ago, there’s scattered evidence that key members of the Bush administration have caught the meme. But a Dec. 16 Washington Post story about this seems to have driven the rhetoric underground. The Bushies have even backed off slightly on tax cuts for the rich, though they are still expected to push for lower taxes on stock dividends, permanent repeal of the estate tax, and an accelerated rate cut for the wealthier half of the U.S. population.
Even though Wessel doesn’t look at the “tax the poor” argument, his piece nonetheless tripped Chatterbox’s highly sensitive Memetracker™ alert system by parsing some questions relevant to that discussion:
Are the rich paying a larger share of the federal income tax? Yes. “The richest 1 percent of taxpayers paid 37.4 percent of all federal income taxes in 2000, up from 16.7 percent in 1970, according to the Internal Revenue Service.” (Some of the backup data can be found here.)
How does that compare to rich people’s portion of all income acquired? Inequality is growing faster than rich people’s federal income-tax bills. The top 1 percent “shared 20.8 percent of all the ‘adjusted gross income’—wages, capital gains, stock options, interest and dividends, partnership and small-business profits—reported on tax returns in 2000, up from 7.4 percent in 1970.”
Still, rich people’s share of the income tax is currently larger than their share of the income, right? Right. They have 20.8 percent of the income but pay 37.4 percent of the income tax.
Why isn’t that an outrage? Because it doesn’t count other, more regressive federal taxes, like those for Social Security and Medicare. When you factor that in, federal taxes are only mildly progressive.
How do we know? During the past two decades, a middle-income family has seen the proportion of its income paid in federal income tax roughly halved. But the proportion of its income paid in all federal taxes has stayed about the same. Wessel: “The middle 20 percent of all families, [the Congressional Budget Office] says, were paying 18.7 percent of their incomes in all federal taxes when Ronald Reagan was inaugurated. When the current President Bush arrived, it had fallen below 17 percent.”
What about state and local taxes? They reduce overall tax progressivity even further. Unfortunately, Wessel doesn’t get into that.
Meme Watch archive:
Dec. 16, 2002: “Bushies Take the Bait”
Nov. 27, 2002: “Introducing the Meme Watch”