Yesterday’s CBO report on taxes and household income from 1979 through 2009 is being played by the media largely as a finding that the average tax rate paid by Americans has fallen to a lower level than at any time in the past 30 years. The desired implication is that taxes are just too low, and must be increased. The more responsible news stories include the fact that, under our progressive tax system, the decline in incomes is primarily responsible, as people find themselves dropping into lower tax brackets.
What most of the media are ignoring are the report’s findings concerning the tax paid by wealthy Americans. Revealing this would undermine President Obama’s mantra that increasing taxes on the wealthy is the key to reducing the deficit.
The top 1% already pay 39% of all Federal income taxes, and the top 10% pay 78%. The top 20% pay 94%. The bottom 40% pay less than nothing (i.e they receive refundable tax credits that more than offset any small amount of tax that may have been withheld.
Wealthy Americans are not an untapped resource, just waiting to be fleeced by the Federal government. They are already providing most of the government’s income tax revenues, and can reasonably said to be paying more than their fair share.
It is also worthy of notice that when Ronald Reagan was President, the share of income taxes paid by the top 1% went from 17% to 27%. Under George W. Bush, it rose from 36.6% to 42%. In both cases this was partly because the so-call “tax breaks for the rich” actually reduced taxes across the board, and even dropped some lower income people from the tax rolls entirely. It was also partly because the lower rates encouraged investment in economic activity that produced more taxable income.
Ironically, during Obama’s first year in office, the top 1% saw their share decline to just 39%, three points lower than under Bush.