NCPA - National Center for Policy Analysis

Using The Tax Code To Redistribute Income

March 14, 2001

Should the tax system be used to redistribute income? Democratic politicians and liberal think tanks adamantly opposed to President Bush's proposed tax cut say it is tilted too much to the rich and too little is given to those with low incomes. Implicitly, they are saying that the tax system should redistribute income.

Recent reports from the U.S. Treasury Department and Congress's Joint Committee on Taxation show how radically redistributionist the tax system is.

According to the JCT, this year 48.6 million Americans will file tax returns but pay no income taxes. Although most have incomes below $20,000, almost 10 percent of all nontaxable returns report incomes between $30,000 and $50,000.

Thus, our tax system is very steeply progressive.

  • In the aggregate, all those with incomes below $20,000 have a negative tax liability, meaning they receive tax refunds even though they pay no income taxes.
  • Those with incomes between $20,000 and $30,000 pay just 1.9 percent in income taxes.
  • From there, effective tax rates rise sharply to 23.9 percent on those with incomes over $200,000.

The top 10 percent of tax filers by income pay 20 percent of their income in federal income taxes, the top 5 percent pay 22.3 percent, and the top 1 percent pay 25.7 percent.

The Bush tax plan would actually raise the total amount of federal income taxes paid by the rich. According to a Treasury Department study, those with incomes between $100,000 and $200,000 will increase their share of the income tax burden from 27.1 percent to 28.3 percent. And the share of income taxes paid by those with incomes over $200,000 will rise from 42.9 percent to 45.9 percent.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 14, 2001.

For Joint Committee on Taxation report


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