Strengthening Constitutional Self-Government

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Tax Facts

Peter Schrag, a veteran California journalist and author of several books on the state, now writes a weekly column for the California Progress Report.  In the latest, he compares Sacramento's fiscal problems to Washington's, and finds that at both the state and national levels, "government and government services are being taken down piece by piece. The paucity of revenues has become an immutable political absolute, like the law of gravity, even as the rich get richer and pay an ever-shrinking share of the taxes. They pay less than in the past, less as a share of their income and wealth, and less compared to the share paid by others."

One of his readers replies that, according to the Congressional Budget Office, Schrag's last three contentions are, respectively, wrong, misleading, and wrong, at least as they pertain to federal taxation. According to a June 2010 report, the "total average federal tax rate" - the sum of federal income, social insurance, corporate and excise tax liabilities divided by household income - for the top percentile of the income distribution was 37% in 1979 and 29.5% in 2007. In constant 2007 dollars, the average household income of the top percentile was $550,000 in 1979 and $1,873,000 in 2007, meaning that it paid $203,500 in federal taxes in 1979 and $552,535 in 2007 - a 172% increase, adjusted for inflation, in the average federal tax bill.

As for the second claim, yes, the rich paid a smaller percentage of their income in federal taxes in 2007 than in 1979 - the CBO report doesn't address the question of household net worth - but everybody paid a smaller portion of their income in federal taxes in 2007 than in 1979. The top-percentile decline from 37% to 29.5% represents a 20% decrease. For households in the lowest quintile of the income distribution the total average federal tax rate declined from 8% in 1979 to 4% in 2007, a 50% decrease. For the second quintile the rate declined from 14.3% to 10.6%, a 26% decrease. For the middle quintile the decline was from 18.6% to 14.3%, a 23% decrease. For the fourth quintile the figures are 21.2% in 1979 and 17.4% in 2007, an 18% decrease.  

Finally, the contention that the rich paid lower taxes compared to the share paid by others is contradicted by the CBO data.  Its report states that the "share of total federal tax liabilities" paid by households in the top percentile of the income distribution nearly doubled between 1979 and 2007, from 15.4% to 28.1%. The additional 12.7% of the total federal tax liability borne by top-percentile households in 2007 corresponds to the 12.6% decline in the payments of all federal taxes from households in the first four quintiles of the income distribution. Those families paid 43.5% of all taxes in 1979 and 30.9% in 2007.
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