Dep’t of Man Bites Dog: Tax Foundation Working Paper is More Honest than Tax Foundation News Release

In honor of Economy Day at the DNC, the Tax Foundation sent me an e-mail trying to convince me that the corporate income tax is terribly unfair to average Americans. The pitch is based on a tax incidence study that claims that in the lower quintile of cash incomes, personal income taxes averaged $171 in 2004, whereas the effective bite of corporate income taxes was $271. Including payroll and excise taxes, they figure that the bottom 20 percent paid on average $1,684. All other figures in the post are from the Tax Foundation.

As an aside, at least the estate tax burden for the bottom quintile was estimated to be $0. For the second quintile, the estate tax burden was $0. At the median, the burden was $0. In the fourth quintile (i.e. up to the 80th income percentile), the average estate tax burden, according to the Tax Foundation, was $0. By advanced mathematics, the maximum estate tax burden for the bottom 80% of the U.S. income distribution was — you guessed it — $0. That goes to show the power of marketing.

Before you start wringing your hands about the corporate income tax shafting the poor, a working paper [PDF] that serves as the source of the statistics is honest enough to note that the net fiscal incidence is the difference between government spending and tax payments. The news item only gives the payment side, but the paper actually provides the benefits and allows calculation of the net incidence.

It turns out that by the Tax Foundation economists’ calculations, that diabolical tax system took that $1,684 only to return $24,860 in spending to bottom-quintile earners, including expenditures on what the authors tally as public goods. Average net benefits don’t turn negative until the fourth income quintile, and the top quintile, with the largest net “burden,” faced an effective total (average) tax rate of 34.55 percent (24.25% federal). That includes income, payroll, excise, property, and estate taxes at all levels, again in the account the Tax Foundation is peddling.

Some of you may think that’s unconscionable confiscation, but I prefer to think of the working well-to-do and the rich as having a glass that’s right around 2/3 full. And even without being anywhere close to the nosebleed sections of the distribution, I can tell you that if you take the pessimistic view of the tax incidence on the well-to-do and aren’t in the top fifth, I’m not trading places to free myself of that “burden.” Just saying.