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ThePlumLIneGS whorunsgov plumline
Posted at 01:10 PM ET, 10/03/2011

How Obama’s tax hikes would really impact the rich, in three easy charts

Ever since Obama redoubled his push to hike taxes on the rich, conservatives have been ridiculing Obama’s invocations of fairness, insisting that the rich are already paying a rising share of the overall tax burden, and accusing him of pushing for mass wealth redistribution in the quest for equality imposed from above. He has been labeled “a staunch believer in the redistributionist state,” a believer in “government-enforced equality,” and even a “socialist.”

So let’s look at how Obama’s tax policies would really impact the wealthy if they were enacted — and how those effects would fit into the bigger picture of income disparity in America.

One way to measure the impact of tax policies is to ask what impact they would have on the after-tax income of people at all income levels. This allows us to gauge just how “redistributionist” tax policies really are.

And guess what: When you do it this way, it shows that the notion that Obama’s tax proposals are redistributive in any large or meaningful way is just comical. Indeed, the big picture is that the impact that they would have on income inequality is virtually nonexistent.

I asked the nonpartisan Tax Policy Center to analyze how Obama’s policies would impact the after tax income of people at all levels, and to compare those results to people’s after tax income under previous tax regimes.

The Tax Policy Center graciously agreed to my request, and looked at what taxes people would pay in 2013 under various tax regimes, when the Obama proposals would take effect. The Center drew up the answers in graph form (editorial conclusions are mine; the numbers are theirs). Here’s the first result:


Here’s how the chart works. In each income group in the top 20 percent — measured here by “percentile” — the blue line represents Clinton-era tax rates; the red represents Bush-era tax rates; and the green represents tax rates under Obama’s first stimulus tax cuts.

The purple and light blue represent what after-tax income would look like for each percentile if Obama’s tax policies were enacted. The blue one includes new taxes from the health reform law that are set to take hold in 2013, and the purple one doesn’t include those taxes. Throughout, I’ll be referring to the one including the health law taxes — the light blue line — because that’s the most onerous scenario.

In other words, under the Tax Policy Center’s model, the purple and blue bars give us a rough sense of the after tax income in various income categories if Obama were to realize his policy goals. The model assumes all the following Obama proposals would get passed: Letting the Bush tax cuts mostly expire for the rich, limiting the value of itemized deductions and some exclusions to 28 percent, taxing carried interest at regular rates, and eliminating tax breaks for oil and gas companies and for corporate jets.

As you can see from the above graph, the big picture is that only the very wealthiest would see anything approaching a signficant change, and in the larger scheme of things, it wouldn’t be a signficant shift at all.

The 95th-99th percentile would drop from an average annual after tax income of $255,379 under Bush to $251,045 under Obama — slightly more than under Clinton, when it stood at $246,372. (All figures are adjusted for inflation, and you can read a table detailing the numbers right here.)

The top one percent would drop from an average of $1,240,975 under Bush to $1,143,598 under Obama’s policies. That change is dramatically dwarfed by the size of the remaining after tax income, which would still tower above every other income group, remaining four or more times higher.

The picture is even more pronounced when you step back and compare the top fifth in income to the other four lower quintiles:


As you can see, the top quintile actually ends up with slightly more after tax income ($198,147 a year) under Obama’s policies than under Clinton ($195,583 a year). And its after tax income drops only by roughly $6,000 from where it was under Bush ($204,011). And under Obama’s policies, the top quintile, would continue to dwarf the other four just as dramatically as it has in the past. (Detailed table here.)

Finally, the third chart shows clearly that only the top one percent and the top 0.1 percent would see their rates rise modestly under Obama’s policies from Clinton-era rates:


Under Clinton, the top 1 percent paid 33.4 percent; under Bush it paid 29.8 percent; and under Obama it would go back up to 35.3 percent, less than two points than under Clinton.

Meanwhile, under Clinton, the top 0.1 percent paid 36.9 percent; under Bush it paid 32.8 percent; and under Obama it would go back up to 39.7 percent. By contrast, every other group would be paying lower rates under Obama’s proposals than under Clinton. (A table detailing these numbers is right here.)

It’s true that the top 1 percent and the top 0.1 percent would be paying more. But the significance of those hikes shrivel dramatically when you consider how much better these folks have fared over time than everyone else has. The highest end hikes shrivel in the context of the towering size of their after-tax incomes — and the degree to which they dwarf those of everyone else, something that has increased dramatically in recent years.

Indeed, if Obama’s proposal is intended as a huge redistributionist scheme designed to level our society by bringing about government-imposed equality, then it can already been seen as a pretty massive failure.

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Editor’s note: Later today, the Tax Policy Center will post a more detailed explanation of its methodology. And all numbers are subject to revision as calculations of this sort are extremely complex.

Update: I accidentally posted the wrong version of the third chart. I’ve replaced it with the right one. The numbers in the text were — and remain — accurate.

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UPDATE: The Tax Policy Center has now posted a much more detailed version of this analysis here and here.

By  |  01:10 PM ET, 10/03/2011

 
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