Tax Follow-up--Samuelson Weighs In

As a follow-up to our post on the equality of the tax system (in which we responded to Ari Fleischer's misleading WSJ op-ed asserting that the rich are being penalized), here is a column by Robert Samuelson--The Rich and the Rest--examining the growing concentration of wealth in the richest Americans.

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.

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.