OLMSTED FALLS, Ohio – “Facts are persistent things,” President John Adams once said.
Of all the wonderful things our Founding Fathers said, the quote above is my favorite. Just four words, but very descriptive. It is of course based on getting accurate facts.
Today we don’t know what to believe, but the Internal Revenue Service is a very reliable source of data.
Google “Tax Foundation and Tax Update 2021”. You will bring up an article that highlights the 2018 aggregate tax data, the most recent to which we have access. Additionally, this data looks at the tax year following the implementation of the Trump tax cuts. If you click on the PDF version you will see all the IRS data.
If you pay little attention to the news, you’ve heard the president and his party’s endless litany, and most of the mainstream media, that the rich are not paying their fair share.
What does the data show?
Let’s focus on one of the bullet points at the beginning of the article:
- The share of reported income of the top 1% of taxpayers fell slightly to 20.9% in 2018 from 21% in 2017. Their share of individual federal income taxes rose 1.6 percentage points to 40.1%.
There is certainly a high (by far highest) progressive tax rate for this group of taxpayers. But how is it that the percentage of income taxes paid by the top 1% (which is over $ 540,000 of income) has increased after Trump’s tax cuts?
Taxpayers can then and now deduct the higher of their individual deductions or the standard deduction. The amount of the standard deduction was doubled, but that didn’t offset another change that affected higher incomes.
Prior to the change in tax law, the breakers had the option to deduct taxes paid to state and local governments. As of 2018, that deduction was capped at $ 10,000 per year, which disproportionately affected wealthier taxpayers who lost many thousands of dollars in deductions from pre-2018 levels.
However, other changes in the new tax law greatly spurred the creation of new entrepreneurial wealth, and pre-COVID-19 macroeconomics took off with record low unemployment rates and new high levels of employment among previously underserved minorities. It was a good, fair tax policy, a tax policy that we should maintain and not abolish.
These facts about the top 1% contradict a recent, widespread publication by Propublica which claims that the wealthy pay less overall taxes than the average person.
There were some legitimate points in this article, but it focused on the super-rich (Warren Buffett, Jeff Bezos, Michael Bloomberg, and Elon Musk) and was a deviation from the above irrefutable 1% data.
Let us take the taxpayer argument to the extreme.
What if the government not only taxed but confiscated 100% of the income of the top 1% on 2018 IRS data? That would make $ 2.4 trillion.
That would be enough to just cover annual pre-COVID deficit spending (not even the $ 6 trillion in new post-COVID-19 spending or the additional $ 1.2 trillion in the bipartisan infrastructure bill).
The point is that to claim that additional taxation on the rich would cover much of the new spending is a gross falsehood and, as history teaches us, would damage macroeconomics and income tax revenues if implemented.
Facts are persistent things.
Mark Altieri of Olmsted Falls is Professor Emeritus of Accounting at Kent State University, where he taught the advanced tax courses, and Special Tax Advisor to the law firm Wickens, Herzer and Panza in Avon.