Paul Lachine, NewsArt
The rich pay a lesser percentage of income in taxes? That's a myth.
- Article by: JOHN LAPLANTE and KIM CROCKETT
- August 7, 2011 - 9:57 PM
Here is some good news for liberals: The current tax code is progressive.
That's not what C. Ford Runge wrote earlier this week in these pages. He falsely asserted, "[T]he tax system has become rigged to shift wealth and income from the bottom to the top, a fact that Grover Norquist and his minions would prefer that you not learn. Now you know."
He is not alone in his error.
In a poll, University of Michigan economist Joel Slemrod found that "51 percent of all respondents think that middle-income families currently pay a higher percentage of income in taxes than high-income families."
Slemrod says: "These beliefs run counter to what nearly all tax 'experts' believe to be true."
As Minnesotans continue to debate budgets and tax policy, it is important to get our facts straight.
The facts from the New York Times, Tax Foundation, Congressional Budget Office, Urban-Brookings Tax Policy Center and Minnesota Department of Revenue all show that the rich pay a higher percentage of their incomes in taxes.
In a hearing held earlier this year, state Rep. Pat Garofalo, R-Farmington, said, "When you look at all funds in the state of Minnesota, not just state, not just local, but all funds in the state of Minnesota, who is paying for those services, who has a higher percentage of their income in taxes, nobody disputes that the wealthy have a higher percentage of their income paid in taxes ..."
You'd expect Garofalo to say that, though. He's a Republican. And though Garofalo had to work hard for it, he found agreement in Minnesota Revenue Commissioner, Myron Frans.
Frans said, "Certainly the federal tax system is more progressive. And it is dramatically more progressive than the state system. And when you include federal tax payments in an incidence analysis, it will show a more progressive representation of taxes paid. I agree with that statement."
Now consider the testimony given by Paul Wilson to the Minnesota House Tax Committee. Wilson, research director of the Minnesota Department of Revenue, said that the entire tax system (federal, state and local), "is going to end up being progressive."
Not only do higher-income taxpayers pay more total dollars in taxes, but they pay about twice the percentage of their incomes in taxes than do lower-income households.
Data from both the Tax Foundation and New York Times show that the top 20 percent of taxpayers pay about 33 percent to 35 percent of their incomes in taxes. In contrast, the taxpayers in the bottom 20 percent pay an average of only 13 percent to 17 percent of their incomes in all taxes.
Middle-income households pay about 25 percent to 28 percent of their incomes in taxes.
How, then, can those in the "tax the rich" coalition stand by claims that the rich pay a lower percentage of their incomes in taxes than the middle class?
They cherry pick data and ignore all federal taxes paid by Minnesotans, poor and rich alike. They ignore the 20 percent of Minnesota spending funded by federal tax dollars, the state and local tax payments by Minnesotans to other states, and the Minnesota state and local taxes paid by nonresidents.
After omitting all those details, an act that at best presents an incomplete argument and at worse a misleading one, they assert that the rich pay a lower percentage of their incomes in taxes than everybody else.
In short, the claim that tax code redistributes income from the poor to the rich is as ridiculous as the claim that the Minnesota Vikings don't have any good running backs on their roster, as long as you don't count Adrian Peterson, Toby Gerhart or Lorenzo Booker.
John LaPlante is a policy fellow at the Minnesota Free Market Institute. Kim Crockett is the institute's president.
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