Tax Day Debate

Today's Wall Street Journal carries some interesting data as Americans write their tax checks to the IRS.

Prominently displayed across the entire top half of the opinion page is a jeremiad by former White House press secretary Ari Fleischer, entitled "The Taxpaying Minority," repeating the WSJ's oft-stated claim that the current tax system "soaks the rich."

Buried on the back of section B, in the Informed Reader column, is a short article excerpted from the Boston Globe, entitled "Burden Shifts From Rich, Flattening the Tax System."

Wow--wouldn't it be nice to put these two articles side-by-side and see how they stack up?

Are the rich being soaked, as Fleischer argues, or is the burden shifting away from the rich, as argued by economists Thomas Piketty and Emmanuel Saez in a study published in the Journal of Economic Perspectives (the source of the Globe story)?

Not surprisingly, the data points to Piketty and Saez--two very serious economists--rather than the glib analysis of White House propagandist Fleischer writing in the GOP's daily rag.

Fleischer argues that the richest segment of the American population is paying an increasing share of the federal income tax burden. Unlike the WSJ's editors, who frequently write quite misleadingly on the topic, Fleischer at least acknowledges that the richest 1% of Americans have seen their tax burden go up at least in part because they also command a much larger share of all income. (In Fleischer's piece, the richest 1% control about 16-17% of all income, up from 9% in 1979.) But Fleischer says the tax burden of the richest 1% has gone up even faster, leading to the conclusion that they are being "soaked."

What's missing here? Two things. First, Fleischer should give you the figures for the share of wealth controlled by the top 1% of Americans--not just income. The share of wealth of the lucky wealthiest Americans has soared in the past two decades as they have accumulated vast piles of stocks, bonds, hedge funds, private equity, real estate and other investments. It has increased at a greater rate than "income." The marginal tax rate on "income" derived from such wealth is much lower than that on salaries, etc,, but because there has been such a huge increase in such wealth, the top 1% is paying more in tax dollars, but not necessarily proportionately more.

Second, Fleischer leaves out other taxes, especially payroll taxes, which fall disproportionately on lower and middle income taxpayers.

As a result, we have what Piketty and Saez have found--a steady flattening of the income tax burden, rather than the progressive tax system that is taught in high school civics. Piketty and Saez state that, "the current federal tax system is relatively close to a flat-tax rate" and trending more so every year.

So who to believe? Just use your common sense. If the tax code was unduly penalizing the highest earners, then we'd expect to see them faring relatively poorly compared to the rest of Americans. That surely is not the case. Unquestionably, the rich have gotten richer--by every possible measure--over the past few decades, taking an ever increasing share of income and wealth. So don't feel sorry for those poor old millionaires defended by Fleischer. Better to get your news from the back page of the Journal.