NCPA - National Center for Policy Analysis


October 8, 2008

According to the Tax Policy Center, around 78 percent of the McCain tax cut would accrue to the top fifth of income earners, with almost 30 percent going to the highest 1 percent.  This seems inequitable on its face, a point the Obama campaign and the press focus on, say Andrew Biggs and Kent Smetters, scholars at the American Enterprise Institute (AEI).

But can we conclude that the rich would pay too little taxes under the McCain plan?  Not really, because most media reports do not reveal the resulting share of the tax burden borne by the highest earners, say Biggs and Smetters:

  • As it happens, the top fifth of earners currently pay 67 percent of all federal taxes -- including not just income taxes, but payroll taxes, corporate taxes and death taxes.
  • The top 1 percent of earners pay 26 percent of all federal taxes.
  • If the McCain proposal were passed, the top fifth would actually pay a greater share of total federal taxes and the top one percent's share would decline by only .3 percent.
  • In other words, high earners carry the vast majority of the federal tax burden and, despite what the media portrays as a shift from Scandinavian egalitarianism to Latin American inequity, would continue to do so under McCain's plan.

But the fact that high earners pay the vast majority of all federal taxes will come as a surprise to most Americans, who believe the middle class bears the tax burden while the rich get off scot free.  A 2007 Gallup poll found that 66 percent of Americans believe upper-income people pay too little federal income taxes.

Moreover, media reports play into these beliefs by focusing on how the candidates' plans would change the tax code, not on what the tax code would look like after those changes took place, say Biggs and Smetters.

Source: Andrew G. Biggs and Kent Smetters, "The Rich Pay Their Fair Share," Wall Street Journal, October 7, 2008.

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