<a href="http://www.opinionjournal.com/editorial/feature.html?id=95001783" target="_blank">A Rich Tax Debate
Hide your wallet, Ted Kennedy's in town.</a>
Sunday, January 27, 2002 12:01 a.m. EST
The sage of Hyannisport, Senator Ted Kennedy, has received media hosannas for daring to propose a tax increase, especially on "the rich." And we have to admit his timing was perfect, because his proposal arrived along with the latest Internal Revenue Service data on who actually pays taxes.
This offers what Teddy's Harvard tutors would have called a teaching moment--maybe even for the Senator, if he cared to learn, but at least for American taxpayers who are too busy making a living to follow the details. So here are the taxing facts, courtesy of Congress's Joint Economic Committee, which coaxed the data for 1999 out of the IRS.
Start with the richest of the rich, the top 1% of all earners. In 1999 they earned 19.5% of all adjusted gross income reported to the IRS. Yet they paid 36.2% of all federal income taxes that year. You read that correctly: The superrich pay in taxes nearly double their proportion of national income.
It gets even richer. The top 1% of tax filers are also paying a much higher share than they used to: About 20 years ago they paid only 19% of all federal income taxes. By 1991, thanks to the progressive impact of the Reagan tax cuts, that share had climbed to 24.8%, and by 1999 it was above 36%. The story is the same for the merely filthy rich, the top 5% of filers, who paid 43.4% of all taxes in 1991 but by 1999 paid 55.5%.
Who's Paying Taxes
Percentiles* \tTotal Share of AGI \t% of Federal Personal Income Tax
Top \t1% \t\t19.5% \t\t36.2%
Top \t5% \t\t34.0% \t\t55.5%
Top \t10% \t44.9% \t\t66.5%
Top \t25% \t66.5%\t\t83.5%
Top \t50% \t86.8% \t\t96.0%
Bottom \t50% \t13.2% \t\t 4.0%
*Ranked by adjusted gross income (AGI)
There's a word for this kind of tax system (see the nearby chart). It's called progressive, not to mention confiscatory. What more do liberals like Teddy want? He already has a tax system in which a mere 5% of all earners pay more than half of all taxes, and he wants to soak them some more? This is progressive pig heaven.
And it is getting more confiscatory all the time. From 1989 to 1999, the share of total taxes paid by the entire top 50% was largely unchanged. But the share paid by the top 10% of filers jumped by 19%, the share paid by the top 5% leapt by 26%, and the share paid by the top 1% soared by more than 43%.
The Kennedy and Tom Daschle Democrats describe President Bush's tax cuts as a huge drain on the Treasury. But in reality they were so modest--cutting the top income tax rate to 35% from 39.6% but not until 2006--that they'll barely make a dent in Teddy's soak-the-rich paradise. The Bush cuts are the minimum needed to offset the economic forces and tax policies that have been raising American tax burdens to record levels. The last time we looked, the federal tax share of GDP was 20.7%, the highest since World War II.
It starts with economic growth kicking more and more taxpayers into higher and higher tax brackets. This is known as bracket creep, and all the Bush tax cut does is offset its inexorable grip on ever more taxpayers. Targeted tax breaks--the personal exemption or itemized deductions--are also phased out as income grows. This is a double-whammy: Each new dollar of income is taxed by the ruling marginal rate and taxed again by the reduction of credits, exemptions and deductions. The result is even higher marginal rates. (The Bush tax cuts don't eliminate these phase-outs until 2009.)
And, by the way, what does Mr. Kennedy mean by "wealthy"? According to the 1999 IRS numbers, all you had to earn to be among the top 25% of all tax filers was a whopping $52,965. (And your reward as an income class for working that hard was to pay 83.5% of all taxes.) To be among the top 50%, you had to earn only $26,415. The 27% marginal tax rate kicks in for single taxpayers at only $27,050 of income.
Many of those average Joes and Janes are tomorrow's "wealthy." According to an analysis of the University of Michigan's Panel Study of Income Dynamics, from 1975 to 1991 more than 80% of the families who started at the lowest one-fifth of the earning population had moved to middle-class incomes (earning an average in 1991 of $22,304) or above. About 30% had increased their income to become the top one-fifth of all earners.
Kennedy liberals prefer to ignore this truth about income mobility because it means their main political claim is false. They want voters to believe that the only people being taxed at these rates are the Trumps and Rockefellers. But what really happens is that the higher rates end up soaking essentially middle class people whose incomes rise during their careers until they end up paying the same tax rate as the Kennedys, though they still can't afford to sail off Cape Cod.
Mr. Kennedy knows what he's doing, of course. By calling for a tax hike, he hopes to shift the national debate to the left and make it that much harder to cut taxes any further. Which is all the more reason for tax cutters to point out how much the government soaks both rich and middle class alike.
[ 01-27-2002: Message edited by: Scott H. ]</p>