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Published by Tax AnalystsTM
In a letter to the editor, Alan Viard says a recent statement by David Cay
Johnston about income redistribution is contradicted by data from the
Congressional Budget Office and the Tax Policy Center.

* * * * *
To the Editor:
In a recent Tax Notes interview, former New York Times reporter David Cay
Johnston stated:

When I started reporting on taxes, I had no idea that . . . the
tax system actually . . . takes from the many to enrich the few
at the top. . . . If you just look at individual income taxes in
isolation, you get a distorted picture. You have to look at the
whole system, not just the income tax, to understand that we have
a socialist redistribution system that is not trickle-down, but
Niagara-up./1/
I write to note that Johnston's statement is squarely contradicted by
available data, particularly the Congressional Budget Office's latest annual
tabulation of the distribution of the federal tax burden./2/
Households in the top 1 percent of the income distribution should be a good
representation of the "few at the top" to whom Johnston referred. To begin,
CBO found that this small group paid a staggering 38.8 percent of all
federal individual income taxes in 2005. Johnston is correct, though, that
it is best to look at the "entire system" rather than only individual income
taxes. After adding social insurance taxes, corporate income taxes, and
excise taxes to the picture, the top 1 percent still paid 27.6 percent of
federal taxes. Since this group had 18.1 percent of before-tax income, it
paid a higher fraction of its income in federal taxes than the remainder of
the population.
Moving below the top 1 percent, the progressivity of the federal tax system
continues to hold. Households in the next 4 percent of the income
distribution paid 16.2 percent of federal taxes and those in the next 5
percent paid another 10.9 percent. In total, households in the top 10
percent paid 54.7 percent of federal taxes; this group had 40.9 percent of
before-tax income.
In contrast, households in the bottom 20 percent of the income distribution
paid a mere 0.8 percent of federal taxes and the next 20 percent paid only
4.1 percent. The next 20 percent, the middle of the income distribution,
paid only 9.3 percent. In total, the lowest-income 60 percent of the
population paid only 14.2 percent of federal taxes; this group had 25.8
percent of before-tax income.
A more recent study, by Jeffrey Rohaly of the Brookings-Urban Tax Policy
Center, uses different data, assumptions, and income definitions and looks
at different years, but obtains very similar results./3/
Rohaly finds that the top 1 percent will pay 24.6 percent of federal taxes in 2010, the next 4 percent will pay another 16.2 percent, and the next 5 percent will pay
another 10.6 percent. In total, the top 10 percent will pay 51.4 percent of
federal taxes. The lowest-income 20 percent will pay 0.8 percent of federal
taxes, the next 20 percent another 4.0 percent, and the middle 20 percent
another 10.9 percent. In total, the lowest-income 60 percent of the
population will pay only 15.7 percent of federal taxes.
Of course, those numbers cannot settle the question of what tax burdens
various income groups ought to bear. Johnston may well contend that, in view
of significant and rising income inequality, high-income households should
pay still more than they currently do. Others, including myself, may respond
that extracting substantial amounts of revenue from those households would
require damaging increases in marginal tax rates./4/
Ultimately, those disagreements must be resolved through the democratic
process; the appropriate distribution of the federal tax burden is likely to
be an important issue in the upcoming election. Whatever our views, though,
we have a responsibility to accurately describe the current system. When
households in the bottom 60 percent of the income distribution pay less than
one-sixth of all federal taxes and those in the top 1 percent pay a quarter
of all federal taxes, it is simply false to claim that the tax system
engages in "Niagara-up" redistribution or takes from the many to enrich the
few at the top.

Sincerely,

Alan D. Viard,
Resident Scholar
American Enterprise Institute
June 16, 2008
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Next time some clueless nitwit claims we need to "tax the rich," please direct them to this site. I don't even care about the traffic, I just want people to see this.