Opinion Editorial | |
| Monday, September 13, 1999 | |
Total Burden On Upper Income Taxpayers Is Even Higher |
Tomorrow, Bill Clinton is expected finally to receive the congressional tax bill passed on August 5 and give it his long-expected veto. One of the main points he will make is that the tax cut is inequitable because it gives more to those at the top of the income distribution than to those at the bottom. A new report from the Congressional Budget Office explains why this is not unfair, but unavoidable.
One of the arguments that has been going on between those favoring and opposing tax cuts is about who is paying taxes and who isn't. The former point out that of the nation's 134 million tax filers, 48 million paid no federal income taxes last year. Of the 65 million tax filers with incomes below $30,000, only 22 million paid any income taxes. Since cuts in income tax rates necessarily only help those who pay income taxes, many people are not going to benefit simply because they have no tax liability.
Critics respond that looking only at income taxes is incorrect, because there are other federal taxes that fall more heavily on those with low incomes. These include Social Security payroll taxes and federal excise taxes, such as the cigarette tax. Including all federal taxes greatly increases the effective tax rate on those with low incomes.
However, as the CBO points out, looking at all federal taxes even more greatly increases taxes paid by those with upper incomes. This is mainly due to inclusion of the corporate income tax, which most liberal groups ignore in their tax calculations. But as all economists know, the burden of corporate taxes ultimately falls on people and it is misleading to leave them out of tax calculations. As a result, total federal taxes rise even more for those at the top than at the bottom, as compared to the income tax alone.
The CBO report also notes that this year those in the top 20 percent of families will pay 65 percent of all federal taxes and an astonishing 79 percent of all income taxes (see figure). The top 10 percent of taxpayers will pay 49 percent of all federal taxes and 63 percent of income taxes. The effective federal tax rate on those in the top 10 percent of families is 30.6 percent, rising to 31.8 percent for those in the top 5 percent and 34.4 percent for those in the top 1 percent. The rate for all families has risen from 22.6 percent in 1991 to 24.2 percent this year.
The tax bill cuts taxes roughly in proportion to taxes paid. Although those at the top would benefit most, it is only because they pay almost all the taxes.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, September 13, 1999.
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