Friday, November 18, 2011

Amplifying a Point

Something started happening in 1980. Gee, I wonder who was president then?--SS

Amplifying a Point:

In a previous post, I linked to a great interview by Greg Sargent with Tim Smeeding. Here’s some amplification of one of the points they made.

The anti-tax crowd is often known to whine about how the rich pay an ever larger share of federal tax revenues. But as Tim noted, that’s not because of higher tax rates, at least since the early Clinton years. It’s because their incomes have grown so much. The first figure makes this point by using CBO data on the tax liability of the richest 1% of households. The figure shows the effective tax rate: their liability as a share of their income.

Source: CBO

Note that from a high of 37% in 1979, the rate drifts down, up, and then, since the mid-1990s, down again to 29.5% in 2007, the last available data point. So in 2007, the wealthiest hh’s were paying the smallest share of their income in Federal taxes since 1990.

How much are the wealthy benefitting from this decline in their tax bill? Suppose we fixed the rate at the 1979 share of 37%. You’d then get the picture below, where the upper line is product of the 1979 rate and the actual pretax income of the top 1% for each year.

Source: CBO, my calculations.

In 2007, the difference amounted to over $140,000 (2007 dollars), and summing up all the lower tax payments across all the households in the top 1% amounts to $1.6 trillion in reduced tax liability since 1979.

What’s that? The 37% peak is too high a rate to apply to the top 1%? OK, Grover, how about the average over the Clinton years (1992-2000), a period of very solid income growth for the top 1%–not to mention the fact that the middle-class did much better in those years and the budget went from deficit to surplus? That’s about 34% and it would mean $740 billion higher tax payments from the top 1% over these years.

So listen not to the caterwauling about who’s paying what share of taxes without looking at their taxes as a share of their incomes.

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