This April 15, Don’t Fall for the Right’s Favorite Lie About Taxes – The Intercept

If you listen to Larry Kudlow, director of the National Economic Council in the Trump White House, or Trump Press Secretary Sarah Huckabee Sanders, or Karl Rove, or former GOP Speaker of the House John Boehner, or 2012 Republican presidential candidate Michele Bachmann, or Gretchen Carlson, or the Wall Street Journal, or Bloomberg News, or the Tax Foundation, or the Heritage Foundation, or Fox, or Fox, or Fox, or just any elderly white relatives who forward you chain emails, you’ve probably encountered statistics like this:

• The top 1 percent of American earners pay almost 40 percent of all federal income taxes. That’s more than the bottom 90 percent pay combined!

• The top 20 percent of Americans pay almost 90 percent of all federal income taxes.

• The bottom 50 percent of Americans pay just 3 percent of federal income taxes. That’s less than the top 0.001 percent — just 1,400 taxpayers or so — who pay a bit over 3 percent of all federal income taxes.

Liberals see these numbers and think: This can’t possibly be right. Yet it is. All of the above is completely accurate.

Conservatives love these numbers, because the implication is clear: The libs want to soak the rich, but the rich are already soaking wet. And now fringe extremists like like Rep. Alexandria Ocasio-Cortez want the government’s grasping hand to take even more from the heroic job creators who are generously supporting the rest of us!

So what’s going on here?

The answer: This is a classic example of how to lie with statistics. It’s shameless but effective propaganda, which is why the people with the most to gain from it pay propagandists to spread it widely. Anyone pushing this is trying to fool you, and you should ignore anything they say on any subject.

There are two main aspects to the deception.

First, these numbers refer only to federal income taxes. Both the federal and the income part are important.

The income tax is not the only tax collected by the federal government — far from it. Just half of the taxes collected by the federal government come from the income tax. About a third come from payroll taxes — which fall much more heavily on working people, since they’re largely levied only on the first $130,000 or so of earned income.

This means the rich pay a far lower payroll tax rate than regular people. A nurse making a salary of $50,000 per year pays (counting both the employee and employer side) 12.4 percent in OASDI taxes (for Social Security and disability insurance). But a sitcom star making a thousand times that, or $50 million a year, will pay the 12.4 percent only on the initial $130,000 of their salary, working out to a total OASDI tax rate of just 0.03 percent on their $50 million. And because OASDI taxes are only levied on earned income — meaning, money you make from a job — a billionaire investor with a $50 million annual income from dividends and capital gains will pay exactly zero percent in OASDI taxes.

Then there’s the fact that it’s not just the federal government that taxes Americans. There are also many, many state and local taxes: State income taxes, property taxes, sales taxes, and more. Some of these, such as sales taxes, are actually regressive — i.e., the less money you make, the higher tax rate you have to pay.

Second, the wealthy naturally pay a disproportionate share of federal income taxes because they make a disproportionate share of the country’s income. In other words, these numbers to some degree demonstrate exactly the opposite of what those who use them claim: They’re not an indication that the superrich are beleaguered, but are in part a sign of America’s staggering wealth inequality.

It is true that the federal income tax is still significantly progressive — that is, the tax rate is higher on higher income. But as Thomas Jefferson would tell you, this is exactly what should happen in a country like the U.S. Jefferson wrote this to James Madison in 1785 from monarchical France: “The property of this country is absolutely concentered in a very few hands … the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property. … [One means is] to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.” Adam Smith also believed in progressive taxes.

So what does the overall U.S. tax system look like when you take all of this into account?

The Institute on Taxation and Economic Policy, or ITEP, a progressive Washington, D.C. think tank, is the only organization that studies this in detail. Each year, they publish a report called “Who Pays Taxes in America?”

This graph is taken from their latest edition and is a projection for 2019.

This April 15, Don't Fall for the Right's Favorite Lie About Taxes - The Intercept nevin manimala

Source: Institute on Taxation and Economic Policy Tax Model, April 2019

What this shows is that, when you take all U.S. taxes into account — federal income taxes, federal payroll taxes, federal corporate taxes, the federal estate tax, federal excise taxes, and the plethora of state and local taxes — the U.S. tax system is just mildly progressive.

If the U.S. tax system were perfectly flat, the share of taxes paid by each group of Americans above would be equal to their share of income.

Instead, the top 1 percent — with an average income of about $2 million — made 20.9 percent of America’s income, but paid 24.1 percent of America’s taxes. Few people will perceive this as a monstrous injustice.

Meanwhile, the middle 20 percent of Americans— with incomes between $41,000 and $66,000 per year — make 10.9 percent of America’s income and pay 9.4 percent of America’s taxes. The bottom 20 percent, making less than $23,000, make just 2.8 percent of America’s income and pay 2 percent of America’s taxes. That is, the “lucky duckies” of the right’s imagination who pay little to nothing in income taxes are still paying a significant portion of their income in taxes overall.

The same data can also be looked at like this, also from the ITEP report:

This April 15, Don't Fall for the Right's Favorite Lie About Taxes - The Intercept nevin manimala

Source: Institute on Taxation and Economic Policy Tax Model, April 2019

Again, this shows that the U.S. tax system overall is slightly progressive. The top 1 percent pays a total of 33.7 percent of their income in taxes — a bit more than those just below them on the income scale and more than the middle class, but not by much. Meanwhile, even the poorest Americans are paying a significant chunk of their income in taxes.

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