Politics & Policy

Kerry Is Backwards On Taxes

The truth is exactly opposite of what's portrayed in the liberal worldview.

Just in time for tax season, the Congressional Budget Office has released new data on distribution of the tax burden. Contrary to popular belief, they show that taxes on the wealthy have risen over time and that the Bush tax cut in 2001 barely kept it from rising further.

A convenient starting point is 1984. At that time, the Reagan tax cut (which reduced the top statutory income tax rate from 70 percent to 50 percent) was fully phased in and the 1983 Social Security tax increase (which raised the OASI tax rate from a combined 9.5 percent to 10.4 percent) had already taken effect. In that year, those in the bottom quintile (20 percent of households) paid an average federal tax rate (individual, payroll, corporate, and excise) of 10.2 percent. Those in the top quintile paid 24.5 percent, the top 10 percent paid 25.2 percent, the top 5 percent paid 26.1 percent, and the top 1 percent paid 28.2 percent. Thus, those at the top paid about two and a half times more than those at the bottom.

Fast forward to 2001 (latest year in the CBO study). The top statutory income-tax rate has fallen to 39.1 percent and the total payroll-tax rate has risen from 14 percent to 15.3 percent. If one knew these figures in 1984, almost all economists would have projected a sharp decline in taxes paid by the rich and an increase in those paid by the poor.

But the data in fact show that those in the bottom quintile are only paying about half what they did 20 years ago: 5.4 percent. This is down from 6.4 percent for the prior year, owing to the Bush tax cut.

Those in the top quintile did pay a little less in 2001 than they did in 2000: 26.8 percent versus 28 percent. But this is still well above the average tax rate they paid in 1984. Interestingly, those at the very top saw virtually no cut at all, even though liberals constantly say that they got the lion’s share of the 2001 tax cut. Between 2000 and 2001, those in the top 10 percent of households saw a drop from 29.7 percent to 28.6 percent and those in the top 5 percent saw a decline from 31.1 percent to 30.1, but those in the top 1 percent saw their effective tax rate virtually unchanged: 33.2 percent versus 33 percent.

All of those in the middle 3 quintiles paid less in 2001 than they paid in 1984. In other words, between 1984 and 2001, average tax rates for the wealthy substantially increased while at least 80 percent of households paid considerably less. Progressivity rose as the wealthy now pay about 6 times more than the poor.

Looking at the share of taxes paid shows a similar pattern. From 1984 to 2001, those in the bottom quintile reduced their share of the total tax burden from 2.4 percent to 1.1 percent. Those in the top quintile saw their share rise from 55.6 percent to 65.3 percent. Among the ultra wealthy, the top 10 percent increased their share from 39.3 percent to 50 percent, the top 5 percent raised their share from 28.2 percent to 38.5 percent, and those in the top 1 percent raised their share from 14.7 percent to 22.7 percent.

In short, the poor paid half as much of the federal tax burden in 2001 as they did in 1984, while the rich paid about 50 percent more. Those in the middle paid about a third less.

One would think that those on the left would be happy about this trend. Instead, they constantly demagogue the wealthy as deadbeats unwilling to bear their “fair share” of the tax burden, and berate the Bush tax cuts for having “slashed” taxes for the wealthy while the rest of us pay more. As is so often the case, the truth is exactly opposite of what’s portrayed in the liberal worldview.

Unfortunately, all taxpayers pay a price for the steeply graduated tax system that has evolved. A new study by economists Steven Cassou and Kevin Lansing shows that a flat-rate tax would add significantly to economic growth. Published in the April issue of Economic Inquiry, the study concludes that real per capita gross domestic product might rise by 0.143 percentage points per year if a flat-rate tax were in place. This may not sound like much, but it’s the difference between GDP doubling in 33 years instead of 36 years.

The Cassou-Lansing study found that flattening the marginal-tax-rate schedule causes most of the economic gains, which explains why tax burdens on the rich rose as their statutory rates fell. Raising statutory rates on the rich, as John Kerry proposes, likely would reverse this trend, causing taxes on the poor and middle class to rise.

– Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”

Most Popular

Elections

Hell, No

Welcome to “The Tuesday,” a weekly newsletter about language, culture, politics, and other things you can fight with your family about at Thanksgiving. To subscribe to “The Tuesday” and receive it in your inbox, follow this link. The Case against Trump In 2016, my friend Roger Kimball of Encounter ... Read More
Elections

Hell, No

Welcome to “The Tuesday,” a weekly newsletter about language, culture, politics, and other things you can fight with your family about at Thanksgiving. To subscribe to “The Tuesday” and receive it in your inbox, follow this link. The Case against Trump In 2016, my friend Roger Kimball of Encounter ... Read More

Another Pollster Sees a Trump Win

The Trafalgar Group’s Robert Cahaly is an outlier among pollsters in that he thinks President Trump will carry Michigan, Pennsylvania, or both, and hence be reelected with roughly 280 electoral votes. (I explained his thinking here.) Last week another pollster, Jim Lee of Susquehanna Polling and Research, ... Read More

Another Pollster Sees a Trump Win

The Trafalgar Group’s Robert Cahaly is an outlier among pollsters in that he thinks President Trump will carry Michigan, Pennsylvania, or both, and hence be reelected with roughly 280 electoral votes. (I explained his thinking here.) Last week another pollster, Jim Lee of Susquehanna Polling and Research, ... Read More

Trump vs. Biden: A Rundown

One week out, the contrasts are worth assessing. Foreign policy Biden so far has issued no substantive critique of Trump’s foreign policy other than banalities that Trump’s comportment and unpredictability have offended allies and tarnished America’s reputation. But who exactly, according to Biden, is ... Read More

Trump vs. Biden: A Rundown

One week out, the contrasts are worth assessing. Foreign policy Biden so far has issued no substantive critique of Trump’s foreign policy other than banalities that Trump’s comportment and unpredictability have offended allies and tarnished America’s reputation. But who exactly, according to Biden, is ... Read More
Elections

The Only Middle Finger Available

If Donald Trump wins a second term, it will be an unmistakable countercultural statement in a year when progressives have otherwise worked their will across the culture. After months and months of statues toppling and riots in American cities and a crime wave and woke virtue-signaling from professional sports ... Read More
Elections

The Only Middle Finger Available

If Donald Trump wins a second term, it will be an unmistakable countercultural statement in a year when progressives have otherwise worked their will across the culture. After months and months of statues toppling and riots in American cities and a crime wave and woke virtue-signaling from professional sports ... Read More
Law & the Courts

The Kavanaugh Court

If Justice Barrett votes as her mentor Justice Scalia did, she will be part of an ascendant conservative majority on the Supreme Court. What kinds of decisions can we expect from this majority? Short answer: Ask Brett Kavanaugh. Contrary to how journalists frame each seat change on the Court, comparing the new ... Read More
Law & the Courts

The Kavanaugh Court

If Justice Barrett votes as her mentor Justice Scalia did, she will be part of an ascendant conservative majority on the Supreme Court. What kinds of decisions can we expect from this majority? Short answer: Ask Brett Kavanaugh. Contrary to how journalists frame each seat change on the Court, comparing the new ... Read More

The Pollster Who Thinks Trump Is Ahead

The polling aggregator on the website RealClearPolitics shows the margin in polls led by Joe Biden in a blue font and the ones led by Donald Trump in red. For a while, the battleground states have tended to be uniformly blue, except for polls conducted by the Trafalgar Group. If you are a firm believer only in ... Read More

The Pollster Who Thinks Trump Is Ahead

The polling aggregator on the website RealClearPolitics shows the margin in polls led by Joe Biden in a blue font and the ones led by Donald Trump in red. For a while, the battleground states have tended to be uniformly blue, except for polls conducted by the Trafalgar Group. If you are a firm believer only in ... Read More