Who will speak for the “affluent?”
By The Wall Street Journal’s op-ed page, of course:
President Biden releases his fiscal 2024 budget next week, and he said this week he will again propose a tax increase so that everyone pays their “fair share.” That makes this a good moment to look again at who pays what in income taxes compared with their actual income.
The Internal Revenue Service recently released its income and tax statistics for 2020, and they show the top 1% of earners paid 42.3% of the country’s income taxes. That’s a two-decade high in the share of taxes the 1% pay.
That same 1% reported earnings of 22.2% of adjusted gross income (AGI) on their tax returns, which means the share of taxes paid by the top 1% as a group is roughly double their share of income. Whatever else you say about the current tax code, there’s no denying that it is steeply progressive.
This is a nice illustration of how to . . . “lie” is such an unpleasant word . . . “dissemble?” “mislead?” with statistics.
(1) The statistic smears together people who made $550,000 with people who made 100 times that or more. If we compare the effective federal income tax rate of people who made between $1 million and $10 million, and those who made more than $10 million — there were 26,000 households in the latter category in 2020 — the effective federal income tax rate of the higher earners declined relative to that of the upper middle class people scraping along at $5 million per year.
(2) The WSJ is only counting income tax in its definition of taxes, which it admits but then dismisses as irrelevant:
These figures are for the income tax only, so they don’t include payroll taxes or excise taxes on gasoline and other goods, both of which are less progressive. But income taxes contribute half of all federal revenue (and roughly another third is Social Security and Medicare, which are ostensibly “earned” benefits), so this gives a fair picture of the tax burden. The basic truth is that the rich really do pay their fair share and finance an enormous portion of the government.
Um . . .Workers who makes $40,000 per year — this is around the median wage for full-time workers — are paying effectively15.3% of their earnings right off the top in FICA and Meditax, if you count the employer contribution as a straight pass-through of the worker’s compensation, which you should. People making millions and tens of millions per year pay effectively no FICA tax at all, as the cap on that tax is the first $160,000 of income. If you look at all taxes, not just federal income taxes, the US tax system is barely progressive if at all.
(3) A really neat trick is that increases in wealth, as opposed to income, are subjected to an effective tax rate of 0.0% under our current system. This means that when the super-rich die they get to pass on the vast increases in their wealth to their devisees without those increases having been subjected to any income tax ever. The moral I suppose is that you should take care to acquire a vast fortune, so you can enjoy the benefits of never seeing your Smaug-like hoard subjected to any taxation.
(4) As to what a “fair” tax rate involves, the WSJ crowd never acknowledges the declining marginal utility of income, which in short means that taxes paid at the margin by the already-rich should make essentially no difference to them, since they’re still rich, unlike taxes paid at the margin by those $40,000 per year full-time workers, who are struggling to pay rent, utility bills, avocado toast budgets etc.