Are the wealthy paying too much in taxes?

(MoneyWatch) 

(credit: CBS)

COMMENTARY Ari Fleischer, the White House Press Secretary for U.S. President George W. Bush, has been trying to make the case on Twitter that the wealthy are taking on more of the tax burden than ever. Here's a sample of his tweets:

@AriFleischer The share of total federal tax paid by bottom 60% dropped from 22.5% in '79 to 14.4% today.
Source: CBO

@AriFleischer The share of total federal tax paid by middle income dropped from 21% in '79 to 16.5% in '07.

@AriFleischer The share of total federal taxes paid by top 10% rose from 40.7% in '79 to 55% in '07.

@AriFleischer The share of total federal taxes paid by top 1% rose from 15.4% in '79 to 28.1% in '07

Of course, the argument is incomplete without knowing how the share of income changed over these years. He uses the CBO as a source, so I'll use the same same data to put his observations in perspective. CBO finds that, between 1979 and 2007, income grew by:

• 275 percent for the top 1 percent of households,
• 65 percent for the next 19 percent,
• Just under 40 percent for the next 60 percent, and
• 18 percent for the bottom 20 percent.

The share of income going to higher-income households rose, while the share going to lower-income households fell.

• The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
• Most of that growth went to the top 1 percent of the population.
• All other groups saw their shares decline by 2 to 3 percentage points.

Let's take the top 1% first. Between 1979 and 2007 income for this group grew by 275 percent, and the share of income doubled from around 10 percent to around 20 percent of total income. However, the share of taxes for this group less than doubled. Thus, a doubling of income resulted in less than a doubling of taxes. Given that income growth outpaced tax growth, it's hard to see how we can describe this as an increase in the tax burden for the top 1%.

What about the middle of the distribution? As noted above, the share of total federal tax paid by middle income taxpayers dropped from 21 percent in 1979 to 16.5 percent in 2007. However, over the same time period the share of income for this group went from 51.1 percent to 43.5 percent. When the fact that the share of income for the middle income group has fallen is accounted for, it's no surprise that the share of taxes has fallen as well. On net, the two roughly cancel -- the fall in income and the fall in taxes are more or less proportional. Thus, the notion that the rich are paying more, and middle income families are paying less -- that income is being redistributed from the rich to the middle -- does not hold up to scrutiny. The rich are doing better than ever, tax rates are at historic lows for this group, and their share of taxes has not risen by as much as their share of income.

What about the bottom of the income distribution? First, it's highly misleading to just look at federal taxes for this group. The federal tax burden is relatively low for this group, but when state taxes, sales taxes, and the like are factored in the burden is relatively high. For example:

Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2010

When all federal, state, and local taxes are taken into account, the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010.

Mitt Romney pays 15 percent, or thereabouts (probably a bit more when state and local taxes are accounted for), while this group pays more than 15 percent in taxes even though their incomes are very low. Enough said about who faces a larger tax burden.

Ari Fleischer is trying to make you believe that taxes on the wealthy have risen, and that the increase in taxes is being used to fund tax reductions for lower income classes. However, when income gains are factored in the numbers tell a different story. This graph shows what has actually happened to the tax rates for the wealthy:

The next time Ari Fleischer or any other political operative tries to make the case that the wealthy have experienced an increase in their tax burden, keep this graph in mind.

[Grant Cardone]

The tax code is clear - it benefits those that own property, businesses, invest in equipment, land and equipment. If you are only going to spend money you don't benefit if you invest money you do. This is not something anyone should hide from rather we should encourage education on what people can do to reduce their taxes.

Create wealth through the investing of stocks and real estate and you pay lower taxes. This creates jobs. Invest money in equipment, capital improvements, and businesses and you pay lower taxes.

There is no gray here. There is no confusion. Mitt Romney nor any wealth creator should apologize that they are playing the game to win. these people take risk and are rewarded for doing so. Go to work and receive an income and never invest your money and there are not tax advantages nor will there be any chance at wealth creation. Invest money and take risk and you have an opportunity to create wealth and even reduce your tax burden.

The top earners in the USA pay a majority of the taxes collected in this country. Quit apologizing, quit dodging it and own it straight up with the people. The only one's that will ***** about a person being successful is those that are electing not to be successful!

This is American it's not France.
Grant Cardone, NY Times Best Selling Author @grantcardone

[johnnyplankton]

My God, you are a *********.

[dww2012]

Gotta love all the voodoo math from the anti-tax crowd. Most people were by and large satisifed with the system 40 years ago. (No they didn't like taxes; yes, they realized taxes are necessary.) Let's go back to the rates we had then. Wham. Bam. Deficit reduction on a massive scale. What objection can the whiners have to paying the same rates their parents or grandparents paid?

[JDREDZ]

I'm thinking if this is so hard to accurately figure out, and judging by all the comments not a simple equation, It is time to make Tax law much simpler.

[TeaneyTCB]

Why doesn't anyone understand we pay taxes based on what the government does for us. Does someone at the 1% level need more protection, more interstate roads or more of anything than the bottom 15% who is getting more in benefits directly from the Government.
Think about it before you disagree.

[dww2012]

"We pay taxes based on what the government does for us?" No - that has government confused with a car wash or fast food outlet. Are real estate taxes based on what you get back? No, it's the value of your home and you get the same schools and streets and emergency services as your fellow citizens. Is there a relation between sales taxes and getting anything back. No, the more you spend, the more you pay. Have income taxes similarly been progressive from the time of their inception? Yes, although much less progressive now. The concept isn't getting back. The concept is fairness and civic responsibility. It's the difference between "We the people" and "Me the people."

[hdc77494]

One more detail, as tax rates have fallen, tax revenue has actually rocketed upward. Lower rates usually ends up meaning more tax revenue, not less.

[hdc77494]

The most important detail missing from this discussion, is that income and wealth are NOT zero sum games. In other words, money earned by one person or group doesn't ccome from someone else's pocket, with the exception of government redistribution. Lib's want you to believe the rich get that way on the backs of the less fortunate, and that's a bald faced lie. You create wealth through innovation or productivity. Steve Jobs made billions. Do you really believe his customers or employees are poorer for it? Romney saved dozens of failing companies, made the hard decisions, and ended up cresting tens of thousands of jobs,, yet lib's want you to think he destroyed all of them and shipped all the jibs overseas. Bull!

[stanorlaski]

Tax Rates are meaningless and revenues are everything. The question is how much revenue is being paid by whoim. The tax being paid by the poor is a red herring. Many of the "poor" are retired and pay property tax, plus they have nothing to do with the argument at hand. Plus, the inference is that raising rates will increase revenue, not a given at all.

[MikeRight1]

"What about the bottom of the income distribution? First, it's highly misleading to just look at federal taxes for this group. The federal tax burden is relatively low for this group, but when state taxes, sales taxes, and the like are factored in the burden is relatively high."

Relatively low? That's an understatement. Federal income tax on the bottom 40-45% is zero or negative. Something like 20-25% get a government check for more than they owed in income taxes for the year, so I find it odd that you could say the bottom fifth's total tax burden increases when you add federal to state and local taxes. That is either completely inaccurate, or you are being misleading because you are also grouping SS and Med tax in when you say "federal tax" - when the whole discussion stemming from Romney's 15% statement is about INCOME tax, not SS and Med. If this is the case, you should at least note that you are comparing different types of taxes when you compare Romney to the bottom fifth. Although, I suppose that would undermine the point you're trying to make.

Again, this whole thing is about federal income tax. What state and local municipalities do in terms of taxation is up to them and the people living within them. State and local taxes vary, and some states don't even have an income tax, so it's rather subjective (and deceiving) to combine all three for one group and compare it to just one for another group, don't you think?

[tsigili]

They are paying far more than their fair share......yes.

It makes zero sense to ask the wealthy to pay more, when the top 10% already pays 70% of all the taxes.

It makes even less sense, when 47% of Americans, are paying NO taxes.

What's wrong with this picture????

[JMSTAR100]

Where does the 47% number (paying NO taxes) come from, and why is it relevant? Even children pay sales taxes when they buy something. And even the poor pay Social Security if they have any job at all.

You somehow conveniently excluded regressive taxes. Did you also exclude children?

If you're talking about income taxes, how is having such a tiny income that they're in the 0% bracket an argument about people with high incomes paying higher taxes?

I would be more sympathetic if rich folks and (especially) large corporations had not lobbied to reduce taxes on themselves and enable exporting manufacturing jobs (tax-deductibly!) while importing the manufactured goods, far more than poor folks have lobbied for redistribution.

As it is, taxing wealthy people & corporations, and redistributing, is one of the few ways we have of ensuring that these policies benefit everyone, and not just the people who could afford full-time lobbyists.

[DebbieCorona]

LOL Of course Ari GWBush Press Secretary has this point of view. Can you say biased? LOL