Most Read: Opinions

direct signup

Join a Discussion

There are no discussions scheduled today.

Weekly schedule, past shows

Right Turn
Posted at 11:00 AM ET, 05/05/2011

How much more can we soak the rich?

In the wake of Osama bin Laden’s killing a significant tax story did not get much notice. The Wall Street Journal reported this week that “a new congressional study concludes that the percentage of U.S. households owing no federal income tax climbed to 51% for 2009”:

A 2008 study by the Organization for Economic Cooperation and Development, for example, found that the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes. “Taxation is most progressively distributed in the United States,” the OECD study concluded.

Meanwhile, the percentage of U.S. households paying no federal income tax has been climbing, and reached 51% for 2009, according to a new analysis by the Joint Committee on Taxation. That was the first time since at least 1992 that more than half of households owed no federal income tax, according to JCT estimates; earlier data were unavailable on Monday.

Upper-income taxpayers have seen their pretax income grow more rapidly than other taxpayers. (“Average pretax incomes for the top 20% grew from $140,300 in 1979 to $264,700 in 2007, in inflation-adjusted dollars; for the top 10%, they grew from $182,800 in 1979 to $394,500 in 2007 according to the Congressional Budget Office. Incomes for all groups rose at least somewhat during the period, in inflation-adjusted dollars, albeit much more slowly for lower earners.”) But, despite liberal rhetoric, the Bush tax cuts have not impeded the trend toward greater progressivity. (“A series of federal tax breaks for lower earners also has increased tax-system payouts and helped reduce tax shares for lower and middle-income earners.”)

This is not an argument for making the tax system less progressive; but the data is a necessary corrective to the impression advanced by the Democrats that the rich don’t pay their “fair share.” They pay much more than that.

In his budget speech last month Obama asserted:

Worst of all, [the Republican budget] is a vision that says even though America can’t afford to invest in education at current levels or clean energy; even though we can't afford to maintain our commitment on Medicare and Medicaid, we can somehow afford more than $1 trillion in new tax breaks for the wealthy. Think about it. In the last decade, the average income of the bottom 90% of all working Americans actually declined. Meanwhile the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. That’s who needs to pay less taxes? They want to give people like me a $200,000 tax cut that’s paid for by asking 33 seniors to each pay $6,000 more in health costs? That’s not right, and that’s not going to happen as long as I’m president.

Of course, Republicans are merely declining to raise taxes (the same decision Obama made himself in the 2010 lame-duck session), and the Republicans (such as those on the president’s own debt commission) are seeking a flatter, simpler tax system with fewer deductions (which will impact higher-income taxpayers who itemize). As the House Budget Committee’s Web site explains:

The House Republican budget keeps revenue within its historical range of 18-19 percent of GDP. The President’s distortion is based on the fact that our budget prevents $1 trillion in tax increases. Many Democrats have claimed that our plan includes huge new tax cuts for the rich. This is completely false. Our plan calls for revenue-neutral tax reform along the lines of what the President’s Fiscal Commission proposed — lower rates with a broader base. The President appeared to have endorsed this idea in his speech, but he also called for higher rates. Despite this contradiction on tax policy, the President was clear in his intent to raise taxes again on job creators and American families.

But such is the state of the rhetoric these days that Democrats view any impediment to raising taxes on the rich as an effort to impoverish the rest of Americans.

Moreover, the Democrats are perpetuating a fundamental untruth: If we tax only the rich more, we can keep entitlement programs just the way they are. But of course, the numbers don’t work that way. In rebutting the president’s speech Ryan at an event sponsored by the e21 think tank was asked whether Obama’s plan could keep the debt stable without raising taxes on the middle class. He answered:.

It’s not mathematically possible. It’s literally inconceivable. . . . [Obama] keeps the size of government spending — right now it’s at 25 percent of GDP. You know, it’s historically at 20. So the public sector now has five percent of GDP more than what it typically had.

He basically keeps it there.

His plan dips kind of organically in the baseline and then goes back up. So he’s basically saying for the rest of this decade, permanently he wants the public sector to take about five percent of our economy in its control.

We get spending down back toward its historic level, and that’s the difference is $6.2 trillion in savings or spending cuts off the Obama budget.

But going in the future, that is really then you’d leap off a cliff. Then spending just goes up on a tear. It’s mathematically impossible, if you agree with this kind of spending, to not tax everybody. . . [I]f you confiscate the wealth of everybody making more than $100,000 this year, you still can’t pay off the deficit. . . . I asked the CBO what will the tax rates in the future out here be when my kids are raising their families?

They actually said, “Well, we can do this, you know.” And so they gave me a letter back that said income tax rates would go like this:

You know, they run models to theoretically do this. The ten percent bracket, which is what lower income payers pay, would go to 25 percent. The middle income tax brackets would go to 63 percent. And the top tax rate would go to 88 percent.

And then they euphemistically say in the next sentence, “This could have some severe negative effects on the economy at that time.” (laughing).

There are legitimate arguments about how progressive our tax system should be; at what level of taxation do we risk impeding economic growth and which goals we want to promote through the tax code (e.g. family economic stability, home ownership, investment)? But we should at least be clear on the facts and our starting point. We can’t solve the debt problem by grabbing more money from the rich. And we simply don’t have, as Obama asserts, a tax system that undertaxes the rich.

By  |  11:00 AM ET, 05/05/2011

Categories:  Budget, Taxes

 
Read what others are saying
     

    © 2011 The Washington Post Company