Opinion Editorial | |
| Monday, October 12, 1998 | |
Rich Pay More Taxes |
A few days ago, the Census Bureau released the latest data on income
distribution in the U.S. At about the same time, the Internal Revenue Service
released new data on taxes paid by the wealthy. Together, these two reports
explain a great deal about where the budget surplus came from. According to the Census Bureau, the rich have gotten richer faster during
the Clinton Administration than at any time in history. In 1992, the share
of total income going to the top five percent of households was 18.6 percent.
By 1997, this figure jumped to 21.7 percent. This represents a much larger
increase in just five years than occurred during all eight years of the
Reagan Administration (see figure).
However, while the increasing share of income going to the richest Americans
was a constant topic of press interest in the 1980s, it is utterly ignored
today. There is a benefit to this trend and that is the increasing share of
income taxes paid by the wealthy.
Not only did the wealthy increase their share of total taxes, they also
increased the percentage of their income paid in taxes. In 1992, the top
five percent of taxpayers had an effective tax rate of 21.15 percent (taxes
as a share of income). By 1996, this figure had increased to 23.88 percent.
If this group had continued to pay taxes in 1996 at their 1992 tax rate,
they would have paid $38 billion less taxes than they did. During the 1980s, the rising share of income going to the wealthy was
assumed to be the result of lower taxes. The fact that the Census Bureau's
income figures are calculated on a before-tax basis did not seem to matter.
Yet during this period we also saw the rich raising their share of federal
income taxes. The share paid by the top five percent of taxpayers, for example,
rose from 36.8 percent in 1980 to 45.5 percent in 1988. Of course, just because one group's share of the pie is getting bigger
does not necessarily mean that anyone else is worse off, because the pie
itself has become larger. Indeed, the real median income of every income
class has in fact risen even as income inequality has grown. Thus even
though the rich have gotten richer, so has everyone else. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
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