Coyote Blog

This has actually become part 1 of a two-part post. In part one, we will look at the unbelievable proportion of income taxes paid by a small percentage of people in this country, and reflect on how crazy it is to talk about the rich getting a free ride. In post 2, we will look at a couple of truly regressive taxes where the rich really do get a free ride, and wonder why these issues get mostly ignored.

Something interesting has happened in this country over the last decade, and it is shown below in one of my favorite statistics. There is much talk in the media about this or that group paying their "fair share" of taxes, but as is usually true in the media, there are depressingly few facts in these articles. This is strange, since there are several government reports that pretty clearly outline the share of taxes paid by various income brackets. The numbers below are from a Congresional Budget Office Report, but the same numbers are buried in the IRS web site as well.

For 2003, the estimated share of total individual income taxes paid by:

Wealthiest 1%: 33.6%
Wealthiest 5%: 55.1%
Wealthiest 10%: 67.9%
Wealthiest 20%: 83.0%
Wealthiest 40%: 97.8%
Wealthiest 60%: 103.0%

The way to read this is that the wealthiest 10% of taxpayers pay 67.9% of the country's individual income taxes. And yes, that 103% is not a typo - the bottom 40% in income as a group pay negative personal income taxes (because of the EITC).

This leads to the following fascinating conclusion: Half of the people in this country pay more than 100% of the personal income taxes. The other half get, as a group, a free ride (though there are individuals in this group that pay paxes, net, as a group, they do not). We are basically at the point in this country where 51% of voters could vote themselves all kinds of new programs and benefits knowing that the other 49% have to pay for them.

Extra Credit Exercise: Given the numbers above, and all the talk about "tax cuts for the rich", craft an income tax cut that does not disproportionately benefit the top half of the income spectrum.

Hard, huh? The same CBO report had an interesting comparison. They estimated what these same numbers would have been without the recent tax cuts. Without the "George Bush tax cuts that unjustly benefit the rich" these same numbers in 2003 would have been:

Wealthiest 1%: 31.9%
Wealthiest 5%: 51.8%
Wealthiest 10%: 63.9%

OOPS - Coyote, that can't be right? That means that the wealthiest people pay a higher share of income taxes after the Bush tax cuts. That must mean that the tax cuts disproportionately helped the lower income brackets? Can that be right?

Yes, thats right. Without the Bush tax cut, the top 60% would have paid 99.9% of all individual income taxes. Now, after the tax cut, they pay 103%, meaning the bottom 40% have gone from paying about 0% to actually getting a bunch of money in net EITC.

Which just goes to prove a related point I make a lot - agree with him or disagree with him, G.W. Bush has got to be one of the worst presidential communicators in recent memory. For further proof, see debate #1.

Interestingly, John Kerry used this same report to say that these tax cuts shifted the burden of taxation to the middle class. And, in one way, he is right, though not in the way that his statement is generally interpreted. For more, see part 2, coming soon. (hint - think total taxes, not just income taxes)

UPDATE

Reason, my favorite libertarian rag, has a related analysis from Nick Gillespie and Mike Snell here. I don't think I trust either Bush or Kerry on fiscal discipline. Neither, apparently, do Gillespie and Snell:

But the fact remains that Bush's cuts have reduced the amount of income tax we all pay. Though Kerry will certainly suggest otherwise in Friday's debate, the trouble with Bush's budget policy isn't that he cut income taxes. It's that he hasn't cut spending. Indeed, perhaps the strongest case for electing Kerry may be that he will usher in an age of divided government that will restrain federal spending and the various problems that accompany it.

UPDATE #2

Fixed an unbelievably bad triple negative - Even I could not figure out what I was trying to say.