Unpacking Conservative Tax Myths

Today, a pair of conservative tax myths crept into the media. The first appeared on Fox News, when Sen. John McCain’s (R-AZ) economic adviser Nancy Pfotenhauer explained that she finds it “personally kind of offensive” to claim it is possible to cut taxes for a majority of the population, because “30% of American families don’t pay any federal income taxes to begin with.” Watch it:

The second myth was put forth by Karl Rove, who argued in the Wall Street Journal that “conventional wisdom says tax cuts have lost their political power,” because “one-third of all filers have no federal income tax liability and nearly 40% of all federal income taxes are now paid by the top 1% of taxpayers (60% by the top 5%).”

Pfotenhauer said she wanted someone to “unpack the math.” So here is the math, unpacked.

Pfotenhauer is talking as if the only tax on American families is the federal income tax. But while the bottom one-third of taxpayers do not pay federal income taxes, “they do work and pay federal payroll and excise taxes as well as state and local taxes.” In fact, according to an analysis by the Urban Institute “most Americans actually pay more payroll taxes than federal income taxes.” Also, the top quintile’s percentage of payroll taxes paid is lower than that of the other four quintiles. This is a tax affecting anyone that receives a paycheck and that takes a higher percentage from the middle class than it does from the top of the income ladder.

Rove’s assertion, meanwhile, is one put forth by many conservatives, including Glenn Beck, Newt Gingrich, Rush Limbaugh, and Bill O’Reilly. And while it is true that the top 1% pay almost 40% of income taxes, Rove and co. are missing the point. The rich are paying such a high precentage because they are making more, while everyone else’s wages have stagnated.

According to the Internal Revenue Service (IRS), “the richest 1% of Americans in 2006 garnered the highest share of the nation’s adjusted gross income for two decades,” and “the average tax rate of the wealthiest 1% fell to its lowest level in at least 18 years.”

Meanwhile, “incomes have declined by 2.5 percent among the bottom fifth of families since the late 1990s,” and “have grown by just 1.3 percent among the middle fifth of families…well below the 9.1 percent gain among the top fifth.” As an analysis by the Center for American Progress shows, since 2001, weekly wages have only gone up 0.3%, despite corporate profits going up 13%. This puts income concentration at its highest level since 1928.

With the math unpacked, it’s clear that conservatives have their numbers and their reasoning all wrong.