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Tax Day: Our Progressive Tax Code — and Obama's Push to Deny the Facts

3:16 PM, Apr 18, 2011 • By JEFFREY H. ANDERSON
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Tax Day 2011 comes in the middle of President Obama’s push for raising taxes to tackle deficit spending. The president’s budget calls for raising both taxes and deficits. But last week, Obama said that we need to reduce deficits, and he announced his intention, as he put it, “to reduce spending in the tax code,” adding that he wants “to cut about $1 trillion from the tax code.” In case you’re wondering, “spending in the tax code” is the president’s new way of describing money that private citizens earn and are allowed to keep. And reducing “spending in the tax code” is his new way of saying that we need a tax hike. 

Obama thinking

Obama also recently accused Paul Ryan, whose budget passed in the House on Friday, of wanting to provide “tax cuts to every millionaire and billionaire in our society.” In fact, Ryan’s budget doesn’t call for tax cuts, with one exception: It encourages “economic growth and job creation by lowering the corporate tax rate from 35 percent, which is the highest in the developed world, to a much more competitive 25 percent.” Ryan also calls for simplifying the tax code, but not for cutting taxes. 

Ryan’s budget would, however, stop all of Obama’s planned tax hikes. As Obama’s budget conveys, he would raise taxes through Obamacare. He would raise taxes on the “rich” by rescinding current tax rates. Amazingly, he would even raise taxes on wealthier people’s charitable giving, as apparently the government doesn’t like to have any competition in caring for the poor or in promoting the good of society. 

In his speech last Wednesday criticizing Ryan’s plan, Obama also claimed that “the tax burden on the wealthy is at its lowest level in half a century,” and therefore the wealthy “can afford to pay a little more.” One might ask why Obama thinks that other people’s money is his to take and spend elsewhere — and what such a notion would mean for liberty — but here I’ll stick with challenging his empirical claims. In fact, the tax burden on the wealthy is nowhere near its lowest level in half a century. Moreover, the wealthy are already paying not just “a little more,” but a whole lot more. (In the interest of full disclosure, I am not among the wealthy.)   

According to the Congressional Budget Office (the source for each chart below), here is the total effective federal tax rate that average households in each of the five quintiles pay — in other words, this is the percentage of people’s income that they really pay in taxes, after all of the deductions have been figured in (the stats are through 2007, the last year for which the CBO has thus far published this information):

Contrary to Obama’s claim, the percentage of federal taxes paid by the top 1 percent — and by the top quintile as a whole — has not fallen over time, but has risen. In 1983, the total effective federal tax rate for Americans was 20.4 percent. In 2007, it was also 20.4 percent, belying Obama’s notion that we have a revenue problem and need a tax hike.  (What we need is to cut spending and get the economy moving.) But, while the overall rate didn’t change, not everybody’s tax rate stayed the same. The top quintile’s tax rate went up, while everyone else’s went down.  Meanwhile, the bottom quintile’s tax rate was cut by more than half: 

Those two charts include payroll taxes, most of which are for Social Security, a program that was designed — more or less — for people to pay in for themselves. Beyond their own Social Security contributions, however, a great many people are not contributing much at all to the wider pool of funds that are used to “provide for the common Defence and general Welfare of the United States.” The following chart shows the effective tax rates that average households in each quintile pay in income tax alone (as opposed to in all federal taxes):

For the bottom two quintiles, as the chart shows, income tax is not someone that you pay but which you are paid; it’s a source of income. Meanwhile, people in the top two quintiles pay 99 percent of the nation’s total income taxes. Of that 99 percent, 86 percent is paid by the top quintile alone, and 40 percent is paid by the top 1 percent alone (more than double the top 1 percent’s 19 percent share of income earned). To put it otherwise, the top two quintiles make 3 times as much money as the bottom three quintiles, yet they pay 75 times as much money in income taxes (98.7 percent to 1.3 percent of the overall tab), as the following chart demonstrates:

In sum, our tax code is clearly, undeniably, progressive — and it has gotten significantly more so over the past quarter-century. People can argue about whether that is good or bad, but they shouldn’t pretend it is otherwise.

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