Tax and income mythology

There is something deliciously serendipitous about the passing of tax day (April 18th) amid a presidential campaign in which all kinds of myths are being spread among the body politic regarding wealth and taxes.

To believe Bernie Sanders and Hillary Clinton, as they thunder against today's "great malefactors of wealth" in those leftist fever swamps disguised as Democratic primaries, America is an utterly rotten place in which a small band of Wall Street plutocrats enslave a fast-food proletariat while reaping massive windfall profits and dodging the taxman along the way.

While it might be expecting too much during an (especially) silly political season for actual facts and logic to intrude, a few caveats might be useful regarding this depiction of an America that could have come out of Pravda back when Bernie was honeymooning in the USSR.

First, and most obviously, the economy isn't a zero-sum game such that gains for one group mean losses for another. As National Review's Kevin D. Williamson recently put it, "There isn't any 'national income.' There's what Smith earns and what Jones earns and what Thompson earns, not a big bucket labeled 'Income' that gets divided up between Smith, Brown, and Thompson. It is a myth that if the incomes of high-income Americans were lower then the incomes of other Americans would be higher."

In short, gains for the "top 1 percent" don't come at the expense of the poor; to the contrary, given the tight linkage between investment and job creation, were the rich to take a big hit, likely so too would the rest of us.

Closely related in the Occupy Wall Street precincts is the claim that the rich don't pay their "fair share" in taxes. For most Americans, the most acceptable principle behind a tax code, at least when viewed in moral terms like "fairness," is probably something resembling "proportionality," in which the contribution a particular income group makes to total tax revenue is roughly comparable to the percentage of national income they enjoy.

To pay less than one's fair share would thus imply an unfair passing of the tax-contribution buck to others; an ungrateful consumption of America's bounty without giving back to the commonweal.

The problem is that, although the rich might have gotten richer in recent decades, they have also been paying a far larger share of the tax burden over time, one that goes way beyond what most would consider fair (in the sense of proportionate).

To support such claims we have a recently released report from the nonpartisan Tax Policy Center based on data for the 2015 tax year. According to the center, those in the top 1 percent paid 43.6 percent of all federal individual income taxes, with the very top (0.1 percent) paying more than 20 percent of the total. By contrast, the bottom 60 percent (comprising the third, fourth, and fifth quintiles) paid a measly 0.3 percent of the cumulative.

Even when figuring in a host of other taxes (excise, estate, corporate income and payroll), the richest 20 percent paid 69 percent of the federal total and the poorest 40 percent just 4.2 percent.

According to Catey Hill, summarizing the center's data for MarketWatch, "The top 1 percent of taxpayers pay a higher effective income-tax rate than any other group (around 23 percent ...)--nearly seven times higher than those in the bottom 50 percent."

So, again, those in the top 1 percent (and maybe especially the top 0.1 percent) have done quite well for themselves over the past several decades, but to claim that they haven't "given back" is absurd. Rather, it is those beneath the top 20 percent or so who receive a disproportionately larger chunk of welfare-state social spending but return virtually nothing in tax contribution to the broader society (the lowest 20 percent contributed just 0.8 percent of total federal tax revenue).

Thus, contrary to the populist pandering of Bernie and Hillary, the most significant trend in our taxation system in recent decades has been a shifting of an ever-larger chunk of the tax burden onto an ever-smaller group of taxpayers (according to the Tax Policy Center data, 45.3 percent of American households paid no federal income tax whatsoever).

But, as usual, it's the politics that matter more than the economics (or the facts) in all this--populism based on "soaking the rich" always plays well, especially with people looking for what Williamson calls "black hats" to blame for difficulties that might actually be of their own making.

Politicians will never tell us to look in the mirror for the source of our problems, and they will always promise to shake down the (seldom defined) rich in order to give us goodies.

Within this context, appeals to social justice (also seldom defined) constitute little more than rhetorical justifications and a means of concealment for the use of coercion to take money from people who earned it and give it to people who didn't; a process that would ordinarily be called theft if occurring in a dimly lit back alley.

But it is only just, as Karl Marx once put it, that the expropriators are in the end expropriated.

So long as we aren't included among the expropriators and get our share of the booty. And the politicians then get our votes, in return for their "compassion."

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Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.

Editorial on 04/25/2016

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