When only the rich pay taxes
Congressional Republicans are backing away from a proposed 10% across-the-board income tax cut. Evidently, a group of 15 or so GOP leaders have gone native, parroting Democrats who feel even a modest cut is "unfair." The data prove otherwise.
President Clinton has long made the case for "targeted" cuts that reward special groups for doing the government's bidding. He warned that a 10% across- the-board cut would "benefit, clearly, the wealthiest Americans." Democrats in Congress have followed the president's lead.
House Minority Leader Richard Gephardt, D-Mo., slammed the Republican plan as "a massive GOP tax cut for the wealthy." Sen. Carl Levin, D-Mich., fretted that an across-the-board cut would be like playing Robin Hood in reverse, sending 60% of the cut to the top 10% of taxpayers. "We should not be redistributing (the surplus) to wealthy people," Levin told the Associated Press.
It's hardly surprising that Democrats, the party of government, feel this way. What's disheartening is that some Republicans are jumping on the targeted tax-cut bandwagon, too.
"An across-the-board cut isn't the right policy for this time," Rep. Nancy Johnson, R-Conn., told The Washington Post. "When you do an across-the-board cut, it tends to help the top earners the most."
The core of these charges is a widely circulated analysis by Citizens for Tax Justice, a left-leaning Washington- based tax and budgetary advocacy group.
"Almost two-thirds of tax cuts would go to best-off 10%," screamed the headline of the Jan. 20 CTJ press release, which doubled as a study. But the study's silver-bullet statistic, which found its way into more than 40 news stories, is that 60% of taxpayers would get less than 10% of the cut.
Really? If the top 10% pay 60% of total income taxes, then it's hardly "redistributing" the budget surplus to refund the people who were most overcharged.
When asked about the total amount of taxes and proportion of the total tax individuals in each of nine income groups paid, the study's author, Bob McIntyre, demurred.
"I guess I'm fighting your question," McIntyre said. But he did allow that individuals don't "pay much income tax at that level (the bottom 60%)." And some don't pay any income tax at all.
But McIntyre stressed that it's misleading to look at just the income tax, since most people pay other taxes, such as the Social Security tax.
That's true, but it's only part of the story. Here's what McIntyre left out.
Yes, the bottom 62% of taxpayers -those with annual incomes under $40,000—will get only 10% of the total income tax cut under a plan that cuts each tax rate by 10%. But these people pay less than 5% of total income taxes, according to data from the House Ways and Means Committee.
And while it's also fair to say that the top 10%—those who earn more than $89,000 a year—will get 62% of the total tax cut, an honest analysis would include the percentage of total income taxes these people pay. In fact, the Ways and Means numbers show that the top 8.7% of earners pay 62% of all income taxes in the U.S.
Even looking at the top 2%—those who earn more than $200,000 a year -one finds that the 10% across- the-board tax cut is fair. Those who pay just over 40% of all income taxes can expect just under 39% of the cut.
The story doesn't change for all federal receipts, which include Social Security and Medicare levies. McIntyre's 60% carry a mere 14.5% of the total tax burden, while those chiselers in the top 10% pick up more than 45% of the tab.
The full data prove what common sense suggests: An across-the-board tax cut benefits all taxpayers, not just the rich.
It's true that tax cuts will only benefit those who pay taxes. It's also true that if politicians such as Clinton and Gephardt define anyone who pays significant income taxes as "rich," then only the rich will benefit from tax cuts.
Let's hope the Ways and Means data help stiffen congressional resolve, and American taxpayers finally get some tax relief this year.