The 1% Pay 37% of Income Taxes: So What?
At AEIdeas, Mark J. Perry notes the statistic above and relates this Rand Paul-David Letterman exchange from 2011:
Sen. Paul: If you look at the income tax, the top 1% pay about a third of the income tax. The top 50%, those who make $70,000 and above, pay 96% of the income tax, so the middle class and above are paying all of the income tax. We are paying our fair share. Even you are probably paying your fair share, you don’t need to pay more.
Letterman: Right, but I think there’s something wrong with those numbers. I don’t know what it is exactly, but I’m pretty sure there’s something wrong with them…
Letterman: Thank you, you’re applauding my stupidity, God bless you.
This is a pretty funny conversation -- but there is, indeed, "something wrong with those numbers." They don't tell us anything at all without more context.
For starters, the proportion of taxes paid must be compared with the proportion of income earned. If the top 1 percent made, say, 45 percent of all income but paid only 37 percent of income taxes, we would all agree they were being undertaxed. If they made 37 percent of income and paid 37 percent of taxes, most of us would still think that: As evidenced by our progressive system, we Americans tend to believe that rich people should pay a higher percentage of their income. And even if the rich made a smaller share of the income than they paid of the taxes, we could debate whether the system was progressive to the appropriate degree.
Another issue is that federal income taxes are unusually progressive -- especially at the state and local level, many taxes are actually regressive -- so by focusing on them we make things look more biased against the rich than they really are.
So what conclusion do we reach when we keep all that in mind? The liberal Citizens for Tax Justice worked up some estimates last year:
(If you're worried about the fact that these estimates were done in April of the year studied, CTJ did a similar analysis of 2011 data in 2012.)
In this model, the top 1 percent of people made 22 percent of the income and paid 24 percent of the taxes. They paid 33 percent of their income to various levels of government, compared with 30 percent for the nation overall. The system is practically flat once you get to the top 40 percent, with about 30 percent of income being paid in taxes.
The government may be much bigger than it should be, but the rich are not overtaxed relative to other Americans.
Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen