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On Class Warfare and Income Taxes, Part 1

This has actually become part 1 of a two-part post. In part one, we will look at the unbelievable proportion of income taxes paid by a small percentage of people in this country, and reflect on how crazy it is to talk about the rich getting a free ride. In post 2, we will look at a couple of truly regressive taxes where the rich really do get a free ride, and wonder why these issues get mostly ignored.

Something interesting has happened in this country over the last decade, and it is shown below in one of my favorite statistics. There is much talk in the media about this or that group paying their "fair share" of taxes, but as is usually true in the media, there are depressingly few facts in these articles. This is strange, since there are several government reports that pretty clearly outline the share of taxes paid by various income brackets. The numbers below are from a Congresional Budget Office Report, but the same numbers are buried in the IRS web site as well.

For 2003, the estimated share of total individual income taxes paid by:

Wealthiest 1%: 33.6%
Wealthiest 5%: 55.1%
Wealthiest 10%: 67.9%
Wealthiest 20%: 83.0%
Wealthiest 40%: 97.8%
Wealthiest 60%: 103.0%

The way to read this is that the wealthiest 10% of taxpayers pay 67.9% of the country's individual income taxes. And yes, that 103% is not a typo - the bottom 40% in income as a group pay negative personal income taxes (because of the EITC).

This leads to the following fascinating conclusion: Half of the people in this country pay more than 100% of the personal income taxes. The other half get, as a group, a free ride (though there are individuals in this group that pay paxes, net, as a group, they do not). We are basically at the point in this country where 51% of voters could vote themselves all kinds of new programs and benefits knowing that the other 49% have to pay for them.

Extra Credit Exercise: Given the numbers above, and all the talk about "tax cuts for the rich", craft an income tax cut that does not disproportionately benefit the top half of the income spectrum.

Hard, huh? The same CBO report had an interesting comparison. They estimated what these same numbers would have been without the recent tax cuts. Without the "George Bush tax cuts that unjustly benefit the rich" these same numbers in 2003 would have been:

Wealthiest 1%: 31.9%
Wealthiest 5%: 51.8%
Wealthiest 10%: 63.9%

OOPS - Coyote, that can't be right? That means that the wealthiest people pay a higher share of income taxes after the Bush tax cuts. That must mean that the tax cuts disproportionately helped the lower income brackets? Can that be right?

Yes, thats right. Without the Bush tax cut, the top 60% would have paid 99.9% of all individual income taxes. Now, after the tax cut, they pay 103%, meaning the bottom 40% have gone from paying about 0% to actually getting a bunch of money in net EITC.

Which just goes to prove a related point I make a lot - agree with him or disagree with him, G.W. Bush has got to be one of the worst presidential communicators in recent memory. For further proof, see debate #1.

Interestingly, John Kerry used this same report to say that these tax cuts shifted the burden of taxation to the middle class. And, in one way, he is right, though not in the way that his statement is generally interpreted. For more, see part 2, coming soon. (hint - think total taxes, not just income taxes)


Reason, my favorite libertarian rag, has a related analysis from Nick Gillespie and Mike Snell here. I don't think I trust either Bush or Kerry on fiscal discipline. Neither, apparently, do Gillespie and Snell:

But the fact remains that Bush's cuts have reduced the amount of income tax we all pay. Though Kerry will certainly suggest otherwise in Friday's debate, the trouble with Bush's budget policy isn't that he cut income taxes. It's that he hasn't cut spending. Indeed, perhaps the strongest case for electing Kerry may be that he will usher in an age of divided government that will restrain federal spending and the various problems that accompany it.


Fixed an unbelievably bad triple negative - Even I could not figure out what I was trying to say.

Posted on October 6, 2004 at 02:01 PM | Permalink


Not a new concern (hat tip to Orrin Judd):

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasure. From that time on the majority always votes for the candidates promising the most benefits from the public treasure, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s great civilizations has been 200 years.

These nations have progressed through this sequence:

From bondage to spiritual faith;
From spiritual faith to great courage;
From great courage to liberty;
From liberty to abundance;
From abundance to selfishness;
From selfishness to complacency;
From complacency to apathy;
From apathy to dependency;
From dependency to bondage.

Sir Alex Fraser Tytler (1742-1813)
Scottish jurist and historian

From his 1801 Collection of Lectures

Posted by: TimF | Oct 11, 2004 3:24:58 PM

Thanks for the stats. Got an update for 2005?

aka. Washu! ^O^

Posted by: Cedric | Sep 22, 2005 10:11:41 PM

THE IRISH FAIR TAX MODEL. How to boost the economy to 5% growth.

Irish wealth grew with over 167% between 1984 and 2002. Average European wealth grew at less than a quarter of that pace. Irish industrial jobs increased with 35% in this period, while in the rest of Europe industrial employment caved in. While the rest of the world was booming, the European economy gradually slided into stagnation or even recession.

Why is Ireland so different? Why could Ireland devellop into the second most prosperous country of Europe in barely a half generation of time? The Irish socio-economic model is a perfect synthesis of the social welfare state and Anglosaxisch liberalism. Its model differs from the rest of Europe by its "fair tax system": an optimal combination of MODERATE AND EFFICIENT GOVERNMENT SPENDING (35% of GDP) and A BALANCED REPARTITION of the TAX BURDEN between direct and consumption taxes.

The irish model provides the incentives for productive contribution, for dynamic entrepreneurship and a high participation rate. The Irish model is successful. Today Ireland meets the challenges of globalisation and the demographic time bomb. Ever more European countries adopt Irish policies, particularly in the East.

Also in England, France, Belgium, Holland and Germany could boost growth, job creation, and wealth by implementing the strategy of decreasing their demotivating taxation, and shifting the tax burden from income to consumption. Ireland showed that it can be done and that the strategy works. Where does one wait for?

More over the Irish success story, how and why can be found at following adresses:
(Dutch and Frensh versions now available at the same web site)


Posted by: workforall | Oct 5, 2005 8:57:19 AM

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