NCPA - National Center for Policy Analysis

Heritage Disputes Report on Taxes

February 7, 2002

The Heritage Foundation has taken issue with a new study that purports to show that the percentage of income going to taxes has dropped for the richest taxpayers, while rising slightly for those earning less than $1 million.

The study was prepared by the labor union-backed Citizens for Tax Justice.

Although the changes were small, William Beech, an economist at the Heritage Foundation, says that the figures may be misleading in several ways:

  • The data fail to capture the growing number of the working poor -- and their meager incomes -- because many of them are immigrants who work off the books.
  • If Internal Revenue Service data fully and accurately reported income, it would show that among the poorest fifth of Americans, median income would be falling -- because of the millions of people coming into the U.S., who mostly earn low incomes.
  • Many of those who file income tax returns may actually be retirees with substantial investments -- but who need only modest incomes because their mortgages are paid off and their children are grown.

One of the more interesting findings was that about 205,000 taxpayers made $1 million or more in 1999 -- up from fewer than 87,000 in 1995, thanks largely to the stock market. Capital gains overall more than tripled during the five years, with almost three-quarters going to those with million-dollar incomes.

Source: David Cay Johnston, "More Get Rich and Pay Less in Taxes," New York Times, February 7, 2002.


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