I'll go ahead and apologize for the poor script.
What's Tax 'Fairness'?
INVESTOR'S BUSINESS DAILY
Posted 10/9/2007
Fiscal Policy: We keep hearing on the campaign trail that the tax system needs reform to make it more \"fair.\" That\'s true, but not for the reasons most people think.
Whether it\'s called \"tax fairness,\" \"economic populism\" or whatever, politicians are eager to show they\'re in touch with the common man. So we\'ve seen a plethora of tax plans that seek to make the \"rich\" pay their \"fair share.\" This is nonsense of the highest sort — but popular all the same.
New data from the Tax Foundation and the IRS show just how nonsensical it is. In 2005, the latest full year for data, the top 1% of earners accounted for 21.2% of all income, but paid 39.4% of all federal taxes. The top 5% earned 35.8% of all income and paid 60% of the taxes. That\'s right: The top 5% paid more in income taxes than the remaining 95% combined.
Go back to 1980 — the dawn of the Reagan era — and the top 1% paid just 19% of all taxes and the top 5% just 37%. It is an irrefutable fact, therefore, that taxes are more progressive (rich pay more, in Democrat-speak) than ever. And it happened with Republican presidents holding office in 19 of 27 years, during a period when, paradoxically, tax rates on the highest incomes fell.
Yet just two years ago, Pulitzer Prize-winning journalist David Cay Johnston asserted, apparently with a straight face, that there was a \"covert campaign to rig our tax system to benefit the super rich.\" Such nonfactual thinking, repeated over and over in the mainstream press, has become embedded in Americans\' minds.
In our own IBD/TIPP Poll, we recently asked Americans if they\'d support higher taxes on the rich and corporations in exchange for taking more middle-class Americans from the tax rolls entirely. To our surprise, 55% of Americans said yes. That includes 47% of all Republicans. They want the rich to pay even more.
This shows a shocking lack of knowledge among the public at large about who pays taxes. Many people have come to believe that, somehow, they get screwed by the tax code, while the rich walk away with paying little or nothing. But that\'s simply not true.
The bottom 50% in income in the U.S. — including, by definition, half of those who are middle class — paid just 3% of all income taxes in 2005. That\'s right: The top 50% in income paid 97%.
Those who say they want more tax cuts for the lower middle class and the poor miss a key point: Those groups don\'t pay much in taxes at all. How can you cut what you don\'t pay? Some 45 million people today have zero federal income-tax liability. An additional 15 million don\'t even have to file.
That said, millions of middle-class Americans will soon find out what it\'s like to be rich. They\'ll be forced to pay the alternative minimum tax, one of the tools in our tax code that ensures wealthy Americans pay more than their fair share.
As for the truly well-off, they\'ll be hit in 2010 by the expiration of the Bush tax cuts. This will push the top income-tax rate to 39.6% from the current 35%. (Democrats also want to raise Social Security payroll taxes paid by the rich, another big hit.)
History, however, shows that tax hikes bring in far less revenues than expected. It\'s easy to see why: Raising taxes on those with lots of wealth shrinks the amount of capital available for investment, which means fewer new jobs, slower growth in incomes and lower overall productivity. Hardly a policy for prosperity.
This is envy, pure and simple, and a tax policy based on envy is the worst kind. It sets neighbor against neighbor and downplays the contributions of skill and entrepreneurial gusto that those we derisively call the rich bring to our economy. In economics, as in most religions, envy is among the deadliest of sins.