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Fleischer: The Latest News on Tax Fairness

Monday, July 23, 2012
By: Ari Fleischer

If fairness in paying taxes means the amount you pay is based on the amount you make, then the only group in America paying at least a "fair share" is the top 20%—people who make more than $74,000. For everyone else, the tax code is a bargain.

You wouldn't know this from President Obama's rhetoric, but our tax system, according to a recent report by the Congressional Budget Office (CBO), is incredibly progressive. Consider: The top 1% of income earners pay an average federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%, and so on down the line. The CBO report includes payroll as well as income taxes paid.

There's also another way of looking at fairness, and that's the tax burden. Here, consider the top 20% of income earners (over $74,000). They make 50% of the nation's income but pay nearly 70% of all federal taxes.

The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. In short, this group's share of taxes paid, 30%, is lower than the share of income they earn, 50%.

Yet President Obama says that "for some time now, when compared to the middle class," the wealthy "haven't been asked to do their fair share."

He's right that the system isn't fair, but not because the top 1% pay too little. It is because they pay too much.

Mr. Obama has said that some wealthy employers pay a lower tax rate than their secretaries. True, some are able to lower their effective federal tax rate by giving millions to charity. Or because they derive much of their income as capital gains or from tax-free municipal bonds.

But middle- and low-income Americans who do not invest also pay lower rates thanks to the deductions they receive, such as a $1,000 per child tax credit (which phases out for couples who make more than $110,000), or the Earned Income Tax Credit, which no one making more than $50,000 is supposed to receive.

The CBO report ("The Distribution of Household Income and Federal Taxes, 2008 and 2009") covers the years 1979-2009. It makes plain that the impression conveyed by the president about what upper-income Americans pay in taxes does not hold up to scrutiny.

First of all, the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down. It has gone up despite the tax cuts enacted by President Clinton in 1997