Economy

REPORT: How The Right-Wing Uses Misleading Numbers To Claim The Rich Are Unfairly Taxed

Last week, Republican spokesperson and former Bush administration operative Karl Rove showed up on Fox News to tell host Neil Cavuto that, contra the claims President Obama has made to justify the new taxes in his proposed deficit reduction package, the rich are already paying more than their fair share in taxes.

ROVE: Here are the facts. One percent of the American taxpayers pay 39 percent of the burden. The top two percent pay over half the burden. 50 percent of all the taxpayers pay 97 percent of the burden. You know, people are paying their fair share.

During the discussion, Fox News also threw up a series of charts (titled “Fair Share”), including one showing the top 1 percent of income earners paid 38.02 percent in federal personal income taxes in 2011. A panel on Fox Business took up the meme the same day, repeating several of the statistics and the charts, with four of the five panelists agreeing with Rove.

This general attitude — that the rich are unfairly taxed while the poor and working classes have “no skin in the game” — has become nearly ubiquitous amongst both right-wing politicians and their co-travelers in the media over the course of this year’s budget debate. On Fox News Sunday, for instance, host Chris Wallace brought up these numbers again: “The top one percent of households with the highest incomes pay 38 percent of federal income taxes… And the president thinks that the wealthy aren’t paying the fair share?”

First of all, these numbers apply only to federal income taxes — which Wallace, to his credit, acknowledged. But the distinction is often elided, allowing the impression that this applies to all taxes to slide by uncontested. Rove, for instance, never mentioned it. It’s just in the fine print of the charts. And whether it gets mentioned in other contexts on Fox News, or in arguments by Republicans, is highly hit or miss.

But individual income taxes made up only 44 percent of federal revenues in 2009. That same year, payroll taxes made up 42 percent of federal revenue. And in 2006, 86 percent of households with wage earners had higher payroll taxes than income taxes.

Payroll taxes apply a flat percentage rate to all of an individual’s income under $106,800, which makes payroll taxes highly regressive — i.e. the overall portion of income lost to the tax goes down as a person’s income goes up. In other words, while roughly two-fifths of the federal government’s revenue comes from progressive income taxes which fall harder on wealthier Americans, another two-fifths of that revenue comes from payroll taxes which fall harder on poorer and working class Americans.

Once state and local taxes are added, the right’s picture of the overtaxed rich deteriorates even further. State and local taxes are highly regressive: in 2007, the lowest 20 percent of earners lost 11 percent of their income to these taxes, while the top 1 percent lost just over 5 percent. When all taxes — federal income, federal payroll, and state and local — are accounted for, the percentage of total taxes contributed by the top 1 percent is almost exactly equivalent to their percentage of the nation’s overall income. In fact, this rough equivalence between tax share and income share holds up across all income groups.

The second problem, a bit more subtle, is that how much a group of Americans contributes to total tax revenue is a separate question from how much of their income they’re paying in taxes. Theoretically, if a person were rich enough, he could be paying 90 percent of the country’s tax revenue while only losing one percent of his income. Under Karl Rove’s telling, this would apparently be a grossly unfair circumstance, event though it would not burden this theoretical person in the slightest. If fair distribution of sacrifice is what’s under debate here, then the second question — how much of their income are the rich losing — is more germane.

Accounting for all federal taxes, the top 1 percent paid 37 percent of their total income (including capital gains) to taxation in 1979. By 2006, that number had dropped to 31.2 percent. The rest of the country also saw a drop in their total effective federal tax rate, but not as large. And over the same time period, the share of all income in the nation going to the top 1 percent increased from 9.96 percent to 22.82 percent.

In other words, while the total effective federal tax rate on the richest Americans fell nearly 6 percentage points, their share of overall national income jumped more than 12 percentage points. During this same time period, the top 1 percent’s average income increased more than 250 percent, while the average income for the bottom 90 percent increased less than 75 percent. Meanwhile, the top 10 percent saw their total federal tax rate fall over 2 percentage points, while their share of income rose 15 percentage points. This is not how the numbers would stack up if the taxes required of the rich were keeping pace with the gains they’ve enjoyed in the American economy.