Friday, May 06, 2005

Taxing the rich

Perfectly Legal
Originally uploaded by mwthomas87.
I just started reading a new book called "Perfectly Legal: The covert campaign to rig our tax system to benefit the super rich - and cheat everybody else" by David Cay Johnston, a Pulitzer Prize winning reporter for the New York Times.

In light of the recent controversy over the Wall Street Journal editorial board's contention that "the overall tax burden grew more progressive" between 1979 and 2000, I thought it would be appropriate to highlight this excerpt from the book:

The Internal Revenue Service in 2003 released its first public analysis of tax returns filed by the 400 highest income Americans each year from 1992 to 2000, the years of both the Clinton administration and the stock market bubble. The minimum to make the top 400 more than tripled from $24.4 million to $86.6 million. About 2,200 different names appeared on the 3,600 tax returns that were analyzed. Only 21 taxpayers made the list each year and only a few times was an income of a billion dollars reported.

In the year 2000, the top 400 taxpayers received 1.1 percent of all the income in America, more than double their 0.5 percent share in 1992.
On average, their income was nearly $174 million, nearly quadruple the $46.8 million average in 1992. They paid an average of $38.6 million each in federal income taxes in 2000. That is a lot of money.

However, the share of their income going to federal income taxes was another matter. It fell. Federal income taxes consumed just 22.2 cents on each dollar of thier income in 2000, down from 26.4 percent eight years earlier and a peak of 29.9 percent in 1995.

The 400's tax burden was not much more in 2000 than the overall federal income tax burden of 15.3 cents on each dollar of income. And the overall effective tax rate had increased from 13 cents on the dollar in 1992.

So during years when the federal income tax burden on Americans overall rose by 18 percent, it fell by 16 percent for the top 400, whose incomes soared.

I may have to post more excerpts from this excellent book as I go through it.

It is probably a good thing for the WSJ editorial board that you cannot link to their infamously dishonest April 26th editorial on this subject. But I would just echo Jonathan Chait when he says:

" may be wondering whether it's really possible that professional editorial writers at a first-rate newspaper - people who, after all, are paid to think seriously about issues like this - could make such a simple statistical mistake. Are they really so dishonest or so dumb as to think that you can measure the fairness of a tax code by looking at what share of the taxes various groups pay without considering how much they earn?"

I think it is really sad that a newspaper which has such high journalistic standards for its news staff, apparently has no integrity whatsoever when it comes to its editorial writers. The disconnect between the two departments could hardly be any greater.

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