Stephen Moore and Phil Kerpen want the readers of today’s National Review to believe that the well to do are paying a lower effective tax rate only because their incomes fell:
But the Left continues to work as best it can around these facts. The Kerry-Edwards campaign is now touting a new study by the Congressional Budget Office which purportedly finds that last year’s tax cut was tilted to the rich. There’s just one problem with this class-warfare whine: It just isn’t true. What the CBO report did conclude was that the total tax share by the richest 1 percent declined modestly from 2001 to 2004. But that wasn’t because of the tax cut. It was because of the recession. When the economy contracts and incomes fall as they did in 2001 and 2002, tax payments by the wealthy fall the fastest. This is because of the progressive rate structure of the income tax. In other words, if everyone’s income falls by 10 percent, the overall percentage of taxes paid by the wealthy falls, because they pay a higher marginal tax rate…From 2001 to 2004 incomes have fallen sharply for the highest income groups. IRS data shows that in 2002, taxable income fell by about 4.3 percent, with declines steepest among the highest income groups.
We did have a mild recession in 2001 followed by a tepid recovery in 2002. But Moore and Kerpen do not reconcile their assertion that the rich has suffered sharp income declines with the fact that the share of income going towards the higher income groups has increased.
But it is easy to spot how Moore-Kerpen distorted the facts: “taxable income fell”. So if my income that escapes taxation goes up, I’m worse off?
Update: Two possible omissions in my statement. One is the possibility that stock losses may lead to a reduction in taxable income even as income as reported in the GDP accounts rose. But more importantly, Brad DeLong notes that Moore-Kerpen failed to read the last sentence of the first paragraph of the CBO report “This analysis of effective federal tax rates from 2002 through 2014 uses data on incomes in 2001, the most recent year for which information is available.”
Kosh notes an oped from Robert Robb who did note that CBO used projected income. So did Robert Novak, but check out MaxSpeak’s
August 19 take on Mr. Novak’s comment.