Tuesday, March 20, 2007

More Economic BS From The WSJ

We've made this point before, but we feel compelled to make it again.

The editors of the Wall Street Journal, who normally can be counted on to at least be sophisticated about economics, continue to insist on misleading accounting when it comes to tax fairness.

In today's Journal, the editors pull a rabbit out of the hat (hence our furry friend to the right), claiming that the latest IRS data "show that the wealthiest Americans continue to carry a record share of the income tax load." They then go on to argue that an "irony" of the Bush tax cuts is that they "have made the U.S. income tax code more progressive."

That's pure baloney. The data to which the Journal's editors refer shows that the share of the income tax burden borne by the wealthiest 1% of Americans has risen from 31.6% in 1996 to 35.6% in 2004. But that's only half the story--the other key component of the data is not revealed by the WSJ's editors: the increased concentration of wealth in the richest Americans.

The reason the richest 1% of Americans are paying a higher percentage of taxes now is because they control a higher percentage of income and wealth. While the trend started before the Bush tax cuts (meaning, we guess, that Clinton's tax increase must've also been great for the wealthy), it accelerated with the Bush tax cuts. In 2004 alone, the top 1% of households garnered 53% of the income gains! (See here.) That disparity produced "an exceptional jump in income concentration in 2004," such that the share of income controlled by the top 1% rose, in just one year, from 17.5% to 19.7%, one of the greatest increases in 100 years. (Id.)

And it's not just income that is becoming more concentrated in the top 1%--corporate wealth, which accounts for tax payments on dividends and capital gains--is also becoming much more concentrated. In 1991 the richest 1% controlled 38.7% of corporate wealth, but by 2003 they controlled 57.5%. (See here.)

So of course the rich, with a greater percentage of income and wealth, should be paying a higher percentage of taxes. But that doesn't mean they're paying proportionately more taxes--indeed, they're paying less as a proportion of their income and wealth. That hardly makes Bush's tax cuts more "progressive." Quite the opposite: the Bush tax cuts are a reason for increased concentration of wealth among the rich.

We're confident the Journal's editors know better. The real "irony" is that their misleading analysis is contained in an editorial accusing Democrats of "sleight of hand" in their budget projections.

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