The Classic Canard behind the GOP Tax Cut for America’s Rich


Cheerleaders for grand fortune conveniently ignore all context when they trumpet the statistics on the share of federal income taxes that rich people pay.

Is America’s tax code “unfair” to America’s rich? The rich — and our elected leaders who cater to them — desperately want us to believe that deep pockets pay far more in taxes than their “fair share.” And their evidence? One simple stat: The richest 1 percent of Americans currently pay about 40 percent of the income tax revenue the IRS collects.

This same 1 percent collects 20.6 percent of the nation’s income.

For the wealthy and their cheerleaders, case closed. The rich, they argue, are doing the rest of us a favor. They deserve a break. More specifically, they deserve the extravagantly generous break the GOP tax “reform” bills now pending in Congress would if enacted deliver.

But let’s not close this case just yet. Let’s take a moment to contemplate why we have these particular numbers and what they really mean.

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  1. What was excluded from this analysis was that federal personal income taxes are only one portion of the taxes that Americans pay, and not all of them are as progressive as the federal income tax. In particular, the FICA taxes used to fund Social Security and sales taxes charged by most states and many counties and municipalities are extremely regressive in nature.

    But those last couple of lines are the real kicker – a surgeon making $500,000 per year pays a much higher rate than a socialite who has income of $500,000 per year from the family trust. If someone believed that taxes on income were leading people to shift from labor to leisure on the margin, this is pretty much the worst tax system one could design to address that consideration.

    • The other taxes weren’t excluded from the analysis. They just weren’t relevant to the point I was trying to make.

  2. Paying at a higher rate doesn’t seem to have hindered wealth accumulation. I’d like to hear your analysis of how a tax on wealth rather than (or in conjunction with) on income work.

    • I don’t know why you would say paying at a higher rate doesn’t hinder wealth accumulation. In the 40’s, 50”s, 60’s and 70’s, we had high rates and also the most egalitarian period in our history. When the rates started declining in the 80’s, wealth started accumulating.

      The estate tax is a tax on wealth. For decades, it helped prevent undue accumulations of wealth. Thomas Piketty advocates a direct tax on wealth. Makes sense. If you want to prevent undue accumulations of wealth, tax undue accumulations of wealth.

      • Thanks Bob!
        When I said “higher rate” I meant the current rate as compared to the Repub proposal to make the rates even lower. I think it’s accurate to say that the top rates since World War II have varied from a high of 90% or so to 35% or so. At the same time we’ve seen an increasing wealth gap. It’s time to increase the top income tax rate and tax wealth more aggressively.

        • You know, it really shouldn’t be hard for folks to understand. To put what you said a bit differently, the rich and the rest of us have different constraints on our ability to accumulate wealth. For the rich, the constraints are taxes on wealth (the estate tax, for example) and taxes on income from wealth. Living expenses for them, are but a sliver of their income. For the rest of us, the constraints are, first and foremost, living expenses, followed by employment taxes, followed by taxes on income from labor. Now, consider what’s happened to those various constraints over the past 4 decades. The constraints on the rich have been diminished radically, while the constraints on the rest of us have remained firmly in place.

          Just copied this to post on Facebook. Thanks for the inspiration, Bill.

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