As proof of the need for tax breaks for the rich, I keep hearing a statement bandied about that the biggest earners in the US are paying an increasing share of the nation’s income taxes. You can read it here in the Wall Street Journal, in an article by Bush’s former press secretary, Ari Fleischer.
Time magazine took a look at this statement, and made some interesting observations (complete with graphs!). It is true that the top 400 taxpayers in the US paid 1.2% of all income taxes in 2002, and just under 1.8% in 2006. But what does this statement really mean?
First, note that this increase occurred during the Bush administration, when taxes for the rich were being cut. So maybe that says that tax cuts for the rich don’t actually work. Note that back in 1992, the top 400 taxpayers paid around 1% of all income taxes, so by 2002 it had only gone up to 1.2%.
Second, note that we are talking about the “top 400 taxpayers” not the 400 people with the highest income. So this statement doesn’t say that the rich are paying more taxes, it says that the 400 people who were least successful at avoiding income taxes saw their share of all income taxes collected increase. I’m not sure of the reasons for that, but maybe the people who were successful at avoiding income taxes just got better at it.
Time then looks at a better statistic, the average tax rate for the top 400 taxpayers, and finds that the tax rate actually went down, from 23% in 2002 to 17% in 2006 — and it was 30% back in 1995. In other words, even if their tax burden went up, it was because their income went up by an even larger enough. And sure enough, the top 400 taxpayer’s share of the nation’s total income went from 0.52% in 1992 to 1.31% in 2006. So the reason their taxes (in absolute dollar terms) went up was because the amount of money they earned went up faster than other people!
In other words, the rich got richer (increasing their take of the national income 2.5 times), and even though their tax rate went down (almost cut in half) their income went up even faster so that they ended up paying slightly more in taxes. Note that this would be true even if we had a completely flat (not progressive) income tax.
Conclusion? If the old saw “Figures never lie, but liars always figure” is true, then Ari Fleischer must be a liar.