I’ve been hearing a lot of misinformed squabbling over taxes lately. One problem is that in the debate over taxes and how much “the rich” should pay, people lose track of the distinction between two very different measures:
1. the share of all taxes paid
2. the share of a person’s income that goes to taxes
Articles in The Economist and the Wall Street Journal and a New York Times columnist are trying to shed some light. In the U.S. (as elsewhere), tax rates for high earners have fallen since 1980. The Times economic columnist David Leonhardt told WNYC’s Brian Lehrer today that 30 years ago, the total tax rate for the very rich added up to over 50%, while today it’s only around 30%. Yet we’re also told that the rich account for a whopping 40% of all U.S. federal income taxes collected—nearly twice their share of three decades ago.
At the same time, according to The Economist, “the income share of the rich has grown faster than the share of taxes paid.” The top 1% of earners (those who make about $400,000 or more) make about 18% of all pre-tax income today, whereas in the 1970s this group took in less than 10%.
That’s per The Economist. The Wall Street Journal references that same Economist article, while citing a different measure of the increase in income share, one reported by the Tax Foundation, a think tank whose numbers are trustworthy if you’re the WSJ, bogus if you’re Paul Krugman. According to Wikipedia, the Tax Foundation gets funding from the Koch brothers, patron saints of the Tea Party movement. Yet even the TF reports, in the WSJ’s words, that “[b]etween 1987 and 2008, the share of income controlled by the top 1% grew to 20% from 12%. That signals a total share growth of 67%.”
Respected economics magazine vs. hoary think tank: different time range and numbers, but the same conclusion. “The rich,” sums up The Economist, “have done very well in recent decades and the richest have done best of all.” That, right there, is the root of the complaints about the increase in income inequality, which is the motivation of the Occupy Wall Street movement (being taken more seriously in the media every day).
In short: today the rich pay more total taxes than they used to—but it’s because they have so much more money in the first place.
How much the rich (or anyone else, for that matter) should pay is an entirely different question. I’m only pointing out the distinction between tax rate and share of taxes paid, so that if we want to argue about the matter, online or on the street, we understand these basic facts.
And maybe go some way towards understanding why it’s so hard to get through downtown traffic these days.