Why Rich People Pay More In Taxes


I enjoy much of the work that the Tax Foundation does, but I find this stuff (which has been picked up here, here, here and elsewhere) almost entirely irksome and unhelpful:

Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the "rich" are not paying their fair share of taxes.

Indeed, the IRS data shows that in 2007--the most recent data available--the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

[...] We are definitely overdue for some honesty in the debate over the progressivity of the nation's tax burden before lawmakers enact any new taxes to pay for expanded health care.

I'm pretty sure this is what's called a "lie of omission." The perfectly obvious and uncontroversial reason why the top 1% of taxpayers paid more in 2007 than at any other time "in modern history" (whatever that means) is because the top 1% of taxpayers are taking home a much greater share of total income.

I don't want to spend a lot of time on this (and I've written about this subject many times before) but if you head to the Congressional Budget Office's "Data on the Distribution of Federal Taxes and Household Income" page you can learn all about this stuff. (The data runs through 2006 -- it's updated slowly and is one year off the Tax Foundation's numbers -- but this doesn't change the basic picture.) You can learn, for example, that while the share of individual income tax liabilities paid by the top 1% has increased from 18.3% to 39.1% between 1979 and 2006, the share of total pretax income has increased at the same rate, from 9.3% to 18.8%.

I've been traveling and haven't been making enough charts, so here's a couple on what this looks like:

share of total income top 1%.png

And here's total income tax liability:

share of total income tax libaility top 1%.png

A bonus point: The headline of the Tax Foundation piece refers to the "tax burden" of the top 1%, but the whole article is about the income tax burden. These are different things! The share of the total tax burden -- which includes payroll taxation and the like -- is substantially lower for the very wealthy.

And a bonus question: Greg Mankiw links to the article and, to his credit, says the numbers reflect "both changing tax policy and the changing distribution of income." But can someone (Greg? my friends at the Tax Foundation? anyone?) please tell me what the recent tax policy changes in question would be? We're talking about 2007 data, remember.

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Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.
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