Throughout the recent tax debate, we were treated to endless sanctimony from the Left on the need for “the rich” the pay their “fair share.” But how much do different income groups actually pay in federal income taxes, and when is it ever enough? On top of that, how much are other income groups getting in wealth-redistributing welfare programs?
On Monday, the CBO published a revealing report of income, tax rates, and transfer payments (government benefits) divided by income levels. Unlike health care projections from the CBO, which are based on phantom crystal ball market insurance predictions, this report is based on hard data from 2014 tax returns.
Here is a breakdown of how much those at various income levels earned as a share of national income and how much they paid both in federal income taxes and total federal taxes (which includes payroll, corporate, and excise taxes)
As you can see, it’s not just that the wealthy shoulder most of the tax burden. The top 10 percent, and particularly the evil top one percent, are the only ones who pay a greater share in total taxes than the share of the income pie they earn. This is even more pronounced when you isolate the data just for the income tax, which is more progressive than the payroll tax. The bottom 40 percent have pay no taxes and yet are getting money out of the tax system, meaning that some of the taxes paid by the wealthy are directly redistributed to the bottom 40 percent through refundable tax credits.
What part of “fair share” doesn’t the Left understand? No other country has such a progressive system. Even in Europe, where the wealthy generally pay higher taxes, everyone else also pays higher taxes, in addition to a national consumption-based tax. The rich in America shoulder a disproportionate burden. And yet, we are still drowning in debt, and all we hear are more cries of, “Tax the rich!”
As you can see from this chart, all but the wealthy have a “low” federal income tax rate:
Liberals often suggest that although the wealthy have higher tax rates, they use all sorts of “loopholes” and deductions to circumvent taxes. However, the CBO breaks down the “effective” tax rates, which shows how much everyone pays after all of the deductions are factored in.
Here is a breakdown of the effective income tax rates by income group and then effective total tax rates, which include the payroll tax.
No matter how you slice it, the wealthy pay significantly more than their “fair share.”
This was all before enactment of the tax cuts. By all measures, the tax bill will make the distribution of the tax liability even more progressive. The bill doubled the child tax credit and increased the “refundable” (handout) portion of it by 50 percent. It also knocked out the bottom bracket and maintained the low 12 percent rate all the way through $77,400 of family income. Conversely, the Joint Committee on Taxation found that the top 0.3 percent of income earners (those earning more than $1 million) will shoulder even more of the tax pie in coming years, thanks to the reduction in taxes for most other income earners.
Contrary to liberal dogma, all the tax reform bills enacted in recent decades, including the Reagan and Bush tax cuts, made the code even more progressive. According to the latest CBO data, in 1979, the top one percent paid 18.4 percent of the income tax pie, whereas now they pay a whopping 40 percent. On the other hand, the bottom 60 percent of earners paid 14.8 percent of the income taxes before Reagan; now only those near the top edge of this group pay very small amounts of income tax, while the entirety of the bottom 40 percent earn money off the income tax code.
As such, if liberals long for an era of a progressive tax code before Reagan, they’d be hard pressed to find that it ever existed in our nation’s history. The tax code is more progressive now than ever before.
But that is only half of the equation of socialist wealth redistribution. The other part of the CBO report calculated the degree of wealth redistribution through welfare programs from the wealthy to low-income earners – after tax redistribution. They found that in 2014, roughly 64 percent of all income for the bottom quintile was from government welfare programs! This was up from 57 percent the previous year.
Why the big jump in just one year? According to the CBO, it’s almost all the result of the Obamacare implementation that year, which means that for the most recent year, as Obamacare exchanges and Medicaid have grown, the redistribution is even more pronounced. Now you know where your $2,000 monthly premiums are going, in addition to lining the pockets of the insurance cartel. In 1979, the transfer rate to the lower quintile accounted for 31 percent of their income, roughly half the current level. Almost all of the growth was because of Medicaid and the insane government-driven inflation in health care.
So, the next time your liberal friends complain about our tax-benefit structure and our economy while clamoring for socialism, let them know that we already have such a system — and that it is likely the culprit that is weighing down upward mobility and increased prosperity. The status quo is not capitalism, it’s socialism. And it’s high time its supporters owned the problems.
Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.