TAXES AND ECONOMIC GROWTH
October 12, 2005
New York Times editorial board member Teresa Tritch believes our tax system should serve one purpose and one purpose only -- to soak the rich. Any reduction in tax rates, especially on saving and investment, has nothing to do with raising growth, but is nothing but a give-away to the ultra-wealthy.
The reality is that the wealthy pay almost all of the federal income tax and there is clear and compelling evidence that our tax system - especially its misguided redistributive elements - impose a heavy cost in terms of growth that is ultimately paid by the non-wealthy in the form of lower productivity and, hence, lower wages and incomes, says Bruce Bartlett, a senior fellow with the National Center for Policy Analysis.
According to the latest Internal Revenue Service data on distribution of the tax burden:
- The top 1 percent of taxpayers paid 34.3 percent of all federal income taxes in 2003, although they earned just 16.8 percent of adjusted gross income.
- The top 5 percent of taxpayers paid more than half of all federal income taxes, the top 10 percent paid two-thirds, and the top half of taxpayers paid 96.5 percent, meaning that the bottom half paid just 3.5 percent.
According to a new report from the U.S. Government Accountability Office, we pay a very heavy price for the heavy taxation of saving, investment, corporations and estates that Tritch strongly favors. It found that the efficiency cost of the tax system -- the output that is lost over and above the tax itself -- is between 2 percent and 5 percent of the gross domestic product. In short, we lose between $240 billion and $600 billion every year just because of the way we raise taxes, says Bartlett.
Source: Bruce Bartlett, "Taxes and Economic Growth," National Center for Policy Analysis, October 12, 2005.
For GAO text:
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