Bruce Bartlett Opinion Editorial: Most Income Taxes Paid By High Income Earners

Opinion Editorial
Monday, October 18, 1999
Most Income Taxes Paid By High Income Earners

The Internal Revenue Service recently released new data on the shares of total federal income taxes paid. Once again, the data show an increase in the share of taxes paid by those with high incomes.

In 1997, the top 1 percent of taxpayers, those with adjusted gross incomes above $250,000, paid 33.2 of all federal income taxes (see figure).
The top 5 percent, with incomes above $108,000, paid a majority of all income taxes: 51.9 percent.
The data further show that the top 10 percent of taxpayers, those with incomes above $79,000, paid 63 of income taxes; and the top 25 percent, with incomes above $48,000, paid 82 percent.
The top 50 percent of taxpayers, having incomes above $24,000, paid 95.7 percent, meaning that the bottom 50 percent paid just 4.3 percent.

The 1997 data simply continue a trend that has been going on for a long time. The share of income taxes paid by the top 1 percent of taxpayers has risen about 1 percent per year for many years. In fact, they have virtually doubled their share of taxes paid since 1981, when they paid 17.6 percent. Obviously, this means that the tax burden borne by the bottom 99 percent of taxpayers has fallen concomitantly from 82.5 percent to 66.8 percent. As a consequence, the effective tax rate on 99 percent of taxpayers has been reduced to 11.7 percent in 1997 from 14.2 percent in 1981.
The vast increase in taxes paid by those at the top of the income distribution is a key reason why taxes as a share of the gross domestic product have been able to rise from 19.2 percent in 1992 to a current level of 21.9 percent without triggering a tax revolt. The fact is that despite an unprecedented level of aggregate taxation, most taxpayers are paying less today than they did 20 years ago.
This is exactly the result predicted by supply-side economists back in the late 1970s. They said that high tax rates on the rich were actually reducing the government's revenue, because the wealthy were encouraged to invest in tax-exempt bonds and other investments that yielded little revenue to the government. Until 1981, the top tax rate was 70 percent; today it is 39.6 percent. Lower rates, supply-siders said, would encourage the wealthy to invest more aggressively once they could keep more of the return, which would also increase government revenue.
The problem today is that so few people are paying any taxes at all that they are becoming completely disengaged from their responsibilities as citizens. I believe that a major reason for declining voting rates and the general lack of interest in politics by so many Americans today is directly related to their de facto exemption from federal income taxes.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 18, 1999.

The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.

For more information:
Julie Hillrichs, Dallas, TX 972-386-6272
Sean Tuffnell, Dallas, TX 972-386-6272
Joan Kirby, Washington, DC 202-220-3082
Internet: http://www.ncpa.org

Home | Support Us | All Issues | Social Security
Debate Central | Contact Us