The Truth About Taxes
To most people outside of Washington, reducing taxes is a welcome idea. After all, taxes paid to the government belongs to the people who sent them there. If Washington can find a way to give some of that money back – especially while still increasing spending on important programs – there is no reason not to do it.
This is common sense. But if defying common sense were an Olympic sport, we may run out of gold medals to award to politicians in our nation’s capital.
For various reasons, special interests and their friends in Congress will go to great lengths to stop tax cuts, pinning their hopes to any number of faulty arguments that might accomplish that aim. They imply that supporting tax relief is inherently selfish, because tax cuts imperil the funding of important Washington programs or threaten the future of Social Security.
But even with income tax cuts, President Bush’s latest budget includes increases in federal spending. And income tax cuts have no impact on the financial health of Social Security, which is funded through payroll taxes automatically deducted from workers’ paychecks.
Yet these distortions pale in comparison to their most cherished attack: that Republican tax cuts unfairly favor the wealthy. Of course, we’ve heard this one before. It is the same shopworn charge Democrats made against Ronald Reagan’s tax cuts in 1981 -- a myth they still cling to as the years have passed.
Senate Majority Leader Tom Daschle recycled that very charge against President Bush last month, declaring that Republicans “have one unchanging, unyielding solution that they offer for every problem: tax cuts that go disproportionately to the most affluent.” Adding cryptically that “Democrats support tax cuts that work,” Daschle then blamed the 2001 tax cuts, most of which had not yet kicked in, for creating deficits, jeopardizing Social Security, prolonging an economic recession, and a host of other evils.
House Democratic Leader Dick Gephardt joined the attack, labeling the Bush tax cuts “biased” and “not fair” to the middle class, while Senator Ted Kennedy warned he would oppose “another round of irresponsible tax breaks for special interests and the wealthy.”
Put aside for a moment the fact that President Bush’s 2001 tax cut was geared to help the middle class (saving an average family of four making $50,000 a year nearly 50 percent in taxes). Are the Democrats right in arguing that tax cutting has favored the wealthy while leaving a disproportionate tax burden on everyone else?
Thanks to information given to Congress’ Joint Economic Committee by the IRS, we now know that the answer to that question is “no.”
As it turns out, the wealthier the American, the greater the proportion of taxes he or she pays. In 1999, for example, the top one percent of all wage earners earned 19.5 percent of all adjusted gross income reported to the IRS, yet they paid 36.2 percent – or more than one-third – of all federal income taxes. Put another way, the top 1 percent of taxpayers on average pay double their proportion of taxes compared to what they actually earn. Similarly, the top 5 percent of wage earners made just a third of all income reported to the IRS, but paid more than half of all federal taxes collected by Uncle Sam. Overall, the top 25 percent of wage earners in this country pay more than 83 percent of all federal income taxes, while earning 66 percent of all income.
Did Ronald Reagan’s tax cuts in 1981 give the rich a free ride? Not according to the IRS. The top one percent are paying a higher share of income taxes now than they did then – 36 percent today versus 19 percent in 1981. The top five percent of taxpayers similarly saw their share of taxes rise from 43 percent in 1981 to more than 55 percent as of 1999.
If there is good news from these statistics, it’s that wealthy Americans aren’t benefitting unfairly while the middle class is hit by taxes. The bad news is that all Americans are getting squeezed by a tax system that drains too many dollars from family budgets.
Tax-cut opponents shouldn’t add insult to such injury by being dishonest with the facts. If they think Washington deserves a bigger share of tax dollars, they should say so, rather than trying to turn their lust for dollars into a groundless declaration of class warfare.