By Ron Knecht – February 23, 2021
“The rich get richer and the poor get poorer.” A glib trope a liberal-statist law school classmate used as an obvious and key claim in advanced constitutional law in 1995. My oral response objection was so loud and immediate the professor admonished me.
But official numbers at that time supported my objection. And sound theory shows that, in a true market economy, it’s the right result when it happens.
We’ve all heard numerous similar tropes from Democrats, liberals, progressives, the politically correct, and populists nearly every day. These claims are so glib, well known, and often generally accepted that the Dems, et al. usually don’t bother to back them with research, data, and analysis. And Republicans, conservatives, and even many limited-government empiricists often don’t even bother to contest them.
More: The rich are paying lower taxes than they used to, especially since the Trump tax cuts.
And: The rich aren’t paying their fair share, so we need to increase their taxes so they do.
Fortunately, the Internal Revenue Service publishes the actual numbers and facts with which we can determine the validity of these claims each year. So, let’s explore the latest annual report, released last month and covering the tax year 2018.
The poor get poorer? The Tax Foundation’s (TF) digest of the IRS’s data states: “The tax year 2018 was the first under the Tax Cuts and Jobs Act (TCJA). The number of returns filed and the amount of income reported grew in 2018 yet average tax rates fell across every income group and total income taxes paid decreased $65 billion.”
So, a tax cut preceded not just increased incomes for the poor and all income classes, but also income for all taxpayers as a group. Score one for the key supply-side claim our tax rates are so high they damage the overall economy.
What about the really rich? Per TF: “The share of reported income earned by the top 1 percent of taxpayers fell slightly, to 20.9 percent in 2018 from 21 percent in 2017.” But remarkably, “Their share of federal income taxes rose by 1.6 percentage points to 40.1 percent.”
Moreover, “Since 2001, the share of federal income taxes paid by the top 1 percent increased from 33.2 percent to a new high of 40.1 percent in 2018.” … In 2001, the top 50 percent of all taxpayers paid 97.1 percent of all individual income taxes, while the bottom 50 percent paid the remaining 2.9 percent.”
That is, the long-term trend shows the income tax has become greatly more progressive. And that trend continued with the Trump tax cuts.
But wait, there’s more! “The top 1 percent paid a greater share of the individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).” And, “The top 1 percent of taxpayers paid a 25.4 percent average individual income tax rate, which is more than seven times higher than the taxpayers in the bottom 50 percent (3.4 percent).”
Let’s hope our current legislature will consider these important statistics as they decide on tax bills to increase taxes that are currently on the table waiting to be voted on.