July
14, 2003, 7:00 a.m.
Riding
the Rich
Liberal pundits should be thanking wealthy Americans.
n June 26, readers of the New York Times saw this headline at the
top of page one: “Very Richest’s Share of Income Grew Even Bigger, Data
Show.” One would have thought that important news was being broken. But
in fact, the reporter, Pulitzer Prize winner David Cay Johnston, writes
virtually the same article annually. On February 7, 2002, and February
26, 2001, he said almost exactly the same thing.
You see, the Internal
Revenue Service is required by law to produce data on taxes paid by the
richest Americans. So whenever this data is ready for release, some friendly
bureaucrat at the IRS lets Johnston have an advance look. The IRS knows
from experience that it will get big play in the Times, which always
hypes every nugget of information showing the rich getting richer during
Republican administrations. It is ignored or buried on the back pages
during Democratic administrations.
This year, the IRS
did something a little different. Normally, it reports data for those with
incomes above $200,000. However, this time it singled out the richest 400
Americans for special scrutiny. It said that the new data was “in response
to requests,” but gave no indication of where these “requests” came from.
I doubt that they came from Republicans. One wonders, also, why it chose
the top 400 for analysis? Perhaps it is because Forbes magazine has
annually calculated the 400 richest Americans for some years.
Whatever the reason,
it was grist for the liberal Times. It is doubtful that very many
readers read the article carefully enough to realize that the data only
went through 2000, when Bill Clinton was still president. The obvious implication
of the headline was that the Bush tax cuts somehow created this result,
also implied by the notes accompanying the charts on page one: “The average
income of the top 400 taxpayers grew steadily ... while they paid less of
their income in taxes.”
The average tax rate
on the top 400 peaked in 1995 and fell thereafter. According to the Times,
the lower effective rates resulted primarily from lower taxes on capital
gains and increased gifts to charities by the wealthy. But the capital-gains
tax didn’t fall until 1997 and we want more charitable contributions. It
is disingenuous to praise such gifts, as the Times often does, while
condemning the fact that this necessarily lowers one’s taxable income. Why
one should be taxed on income one has given away to a church, hospital,
or university is left unanswered, although it is implied that this is wrong
because it lowers one’s tax liability.
Those reading only
the front page of the Times story missed the qualification that many
more than 400 people occupied the top 400 list during the nine years. In
fact, according
to research by Congress’s Joint Economic Committee, 2,218 taxpayers
were on the list at some point during the period. Amazingly, three-fourths
were among the top 400 for just one year and 87 percent were on the list
for two years or less. Less than 1 percent made the cut every year.
In short, there is
substantial mobility in and out of the ranks of the very wealthy, a fact
documented by Forbes in its annual survey. According to a
recent study by the Federal Reserve Bank of Boston, between 1988 and
1998, 47 percent of those in the lowest income quintile rose to a higher
quintile, and 47 percent of those in the top quintile fell to a lower one.
Furthermore, although
the average tax rate on the top 400 fell, one has to go to the
original IRS report to discover that their share of total income taxes
paid rose by 50 percent, from 1.04 percent in 1992 to 1.58 percent in 2000.
In other words, the richest of the rich paid more and everyone else paid
less.
This information is
not surprising to those who know that the top 1 percent of taxpayers have
increased
their tax share almost annually, from 19 percent in 1980 to 27 percent
in 1988, despite the Reagan tax cuts, and to 37 percent in 2000. Interestingly,
the same pattern holds in other countries.
• In
the United Kingdom, the top 1 percent of taxpayers paid 23 percent
of income taxes this year.
• In Canada,
the top 1 percent paid 24 percent in 2001.
• In Australia,
the top 5 percent of taxpayers paid 27 percent of income taxes in 2000.
In all countries for
which I can find data, the percentage of taxes paid by the rich is rising.
Yet this fact does nothing to diminish demands that they pay even more.
Personally, I am happy
to be paying less taxes because people much wealthier than me are carrying
so much of the load. They deserve gratitude, not derision.
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n June 26, readers of the New York Times saw this headline at the
top of page one: “Very Richest’s Share of Income Grew Even Bigger, Data
Show.” One would have thought that important news was being broken. But
in fact, the reporter, Pulitzer Prize winner David Cay Johnston, writes
virtually the same article annually. On February 7, 2002, and February
26, 2001, he said almost exactly the same thing.
