Monday, August 16, 2004
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EDITORIAL: Crunching the tax numbers

Everyone pays less taxes. But is someone, somewhere, saving more than you?

In this campaign season, the Democratic Party has taken on itself the daunting challenge of convincing voters that George Bush's tax cuts have hurt them.

Well, they can't do that, exactly. Every American's effective individual income tax rate went down in 2002 and 2003, by averages of 1.1 percent and 2.2 percent, respectively. And average effective individual income tax rates will drop by 2.4 percent for the taxes due next April. (The drop is actually 3 percent if you count all federal taxes, according to the Congressional Budget Office.)

It's not unusual for a family with household income of $75,000 to have paid $2,000 less in income taxes after the Bush tax cuts than they paid before.

So the Democrats have instead turned to an old theme -- jealousy. OK, they argue, your tax rate may have dropped by 1.3 percent last year if you're in the lowest fifth of wage-earners who pay taxes (many pay none at all, of course -- rendering it difficult to cut their rates). And your taxes may have dropped by 1.7 percent if you're in the "middle quintile" of wage earners -- the $51,000 club. But rich people's taxes dropped by 3.1 percent! Don't you see? It's a subsidy for the rich!

Of course, if we define "subsidy" as taking less out of someone's pocket, then a stickup man who steals $100 from everyone who passes his street corner, but chivalrously decides not to rob young women, might be said to be paying the gals a "subsidy" of $100. But not really. The ladies don't have any more money in their purses after they pass by than they had before.

Nonetheless, this is the approach congressional Democrats have taken. They asked the Congressional Budget Office to prepare a report, carefully posing the question: "How much have President Bush's tax cuts shifted the burden of federal tax payments to the middle class?"

The CBO study, released Friday, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. (Note that the wealthiest 20 percent still pay far more than half of all income and other federal taxes collected -- this is characterized by the Democrats, of course, as "not paying their fair share." And of course, this ignores the fact that a growing economy continually moves new people up into the middle class -- a status few of them would willingly give up, even for a "tax break.")

But meantime, the CBO reports the top 1 percent of taxpayers, paying taxes on average reported earnings of $1.1 million, saw their share on the total federal tax burden fall to 20.1 percent of the total, from 22.2 percent.

Over that same period, taxpayers with incomes from $51,500 to $75,600 saw their share of federal tax payments increase. Households earning around $75,600 saw their share of the tax burden jump the most, from 18.7 percent of all taxes to 19.5 percent.

But mind you, that's their share of income taxes paid. It's a statistic carefully designed to sidestep the fact that everyone is actually paying less in taxes -- including that hypothetical $75,000 household.

Because the CBO also reported the middle 20 percent of taxpayers -- whose income averaged $51,500 in 2001 -- saw their tax rates drop 9.3 percent. And the poorest taxpayers saw their taxes fall by a whopping 16 percent.

In fact, if Social Security, Medicare and other federal levies are excluded, the rich are actually paying a higher share of income taxes this year than they would have paid without the Bush tax cuts, the CBO found.

"Are the rich paying their fair share?" asked one congressional GOP aide. "Yeah. They're paying more."

But darn it, the effective federal tax rate of the top 1 percent of taxpayers has fallen from 33.4 percent to 26.7 percent, the Democrats insist -- a 20 percent drop. And that means that while an average taxpayer earning $51,500 may be paying $1,090 less in taxes, those millionaires who have worked their way into the top 1 percent actually saw their tax bills drop by $78,460.

Most of which they will proceed to invest in companies creating new jobs, of course. (You can only use so much to light your cigars.)

But in the land of the redistributionists, apparently that's to be lamented.