Kudlow: Still Unaware That People Pay Taxes Beyond Those Federal Income Taxes

Greg Ip writes:

The richest Americans’ share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers. The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks. The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.The IRS data, based on a large sample of tax returns, are for “adjusted gross income,” which is income after some deductions, such as for alimony and contributions to individual retirement accounts. While dated, many scholars prefer it to timelier data from other agencies because it provides details of the very richest — for example, the top 0.1% and the top 1%, not just the top 10% – and includes capital gains, an important, though volatile, source of income for the affluent. The IRS data go back only to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s.

Lawrence Kudlow reacts:

I’m surprised that today’s Wall Street Journal story on income inequality failed to mention that while the wealthiest 1 percent of Americans earned 21.2 percent of all incomes in 2005, they now pay nearly 40 percent of all taxes.

All taxes? While Kudlow wants to spin the numbers, Kevin Drum is more interesting in providing reliable information. The Cliff Note version of what Kevin said has this:

So the tax system is moderately progressive until you get up to the 5,000 richest people in the country, at which point it becomes regressive. However, this includes only federal income tax and payroll taxes. It doesn’t include excise taxes, state income taxes, sales taxes, or property taxes. If you add in all that stuff, things get even flatter.

Kevin later reported on some data given to him by The Tax Foundation:

The Tax Foundation may be a conservative outfit (they’re the ones who bring you “Tax Freedom Day” every year), but they emailed to let me know that they produced a report of their own last year showing overall tax rates at various income levels. It shows that federal taxes are progressive, state taxes are about flat, and total taxes are modestly progressive. Basically, the tax rate for the average worker is 28% while the tax rate for the richest taxpayers is 34% (and probably a bit lower than that for the very richest taxpayers).

Yep – Kudlow just makes shit up and the National Review lets him post it. Go figure.