Riedl’s Myth 10

We’re at the last of Brian Riedl’s Ten Myths. Before I go on, I’d like to thank Brian Riedl. Despite the snark, not to say uncalled for insults, I hurled in his direction at the beginning of this process, he’s been a good sport, and he’s been taking time to come here and argue the points. Given that the budget has just been released, it’s a very busy week for him, so the time issue should not be underestimated.

Here’s Myth 10

“Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.”

Riedl is right about this, but I don’t think its a selling point. Recall that, as I noted in another post, real per capita income has been declining. In fact, it declined every year from 2000 until 2004. Its up in 2005 but still below 2000 level. Aside from whether having the wealthy pay a greater share of the tax burden than before is enough to make up for the fact that most of us have less income than ever before, it should be noted that the real GDP per capita is growing. If on average we have less real income but real GDP per capita is growing, where is the extra income going? Presumably to the folks at the top.

Sadly, the Census doesn’t break down data on real income per person into quintiles (unless I’m just not seeing it), but they do provide share of aggregate income received by each fifth and top 5 percent. Since 2000, the share going to the bottom 3 quintiles has dropped. The fourth quintile has stayed constant, and the fifth quintile has seen an increase.

(Family income shows a similar pattern, except that the fourth quintile is also slightly better off since 2000.)

Thus… the wealthy are paying more because they are becoming more wealthy while everyone else is getting poorer. (Note – this is not to bash GW. These trends have been around for a while. The same could have been said under Clinton, for example.) Even under a flat tax that would be true.


Update…. Check out the second table on this page which shows real income per family by quintiles and the top 5% in constant 2005 dollars. (The first table shows nominal dollars.) The bottom quintile is making more money than in 2000, and quintiles 2 through 5 are making less. The ones making out like bandits are the top 5%. The same is true since 2001. In other words… sure, the rich are paying more. Under Clinton, even if the distribution got more uneven, everyone got better off. Under GW, most people are getting screwed.

So sure, Riedl is right. The rich are paying more. But that’s because, unlike the rest of us, they’re making more money than they were in 2000.