The Harvard economics professor looks at the Council of Economic Advisers’ contention that the 400 richest households in the U.S. pay lower average tax rates than everyone else. The White House gets this result by including unrealized capital gains in the denominator even though they are not taxed. Mankiw comments:
The problem is that this question has little connection to the policies now being discussed. As I understand it, the essence of the plan under consideration is not a tax on the unrealized capital gains of the 400 richest families. Instead, the plan aims to raise the corporate tax rate, which in turn is paid by the many shareholders, workers, and customers of the companies. (Economists debate the relative incidence.) In addition, the plan aims to raise the tax rates applied to the already-taxed income earned by people making more than $400,000 a year. I would guess that this latter group includes about 1.5 million taxpayers. Needless to say, 1.5 million is a much larger number than 400. And the finances of the 400 are in no way representative of the finances of the 1.5 million.
Don’t get distracted by this shiny object.
Advocates of a corporate-tax increase perform a similar maneuver when they say that it’s needed because many corporations pay no taxes at all in some years. What they don’t mention is that many corporations would still have zero-tax years under the Democrats’ plans.
The good news for progressives is that their talking point will still be available to help justify the tax increases after this one.