Soaking the Rich?

SYNOPSIS: More Republican lying with statistics: Increasing income inequality swells the incomes of (and tax revenues from) the top 1%, and, though tax rates themselves have become more regressive, Republicans want to falsely advertise this phenomenon as evidence that the rich have been progressively soaked between 1979 and 1997

Amazing: the campaign to convince the public that tax policies in recent decades have involved a progressive effort to soak the rich is gathering force; rumor has it that it will be a major theme of the next Economic Report of the President.

The good people at CBPP have a sensible  report on this. But in a way they're too generous. Comparing the share of income paid in taxes by the top 1% in 1979 and 1997 misses the point that the top 1% has grown far richer; because the tax system is progressive, this would lead other things equal to a rise in that ratio. To get a sense of how the progressivity of the tax system has changed, we should look at is how tax rates have changed at any given level of income.

Here's a quick and dirty  chart . I've taken income categories and average tax rates from the CBO study that was one of the major data sources for my NYT magazine article. Here's what we learn. A family with an income of $40,000 in today's dollars paid about 18 percent of income in federal taxes in 1979, slightly less - around 17% - in 1997. A "$400,000 a year working Wall Street stuff, flying first class and being comfortable" (thank you, Gordon Gekko) paid about 37 percent in 1979, only 31 percent in 1997.

Does this look or sound like a tax system that increasingly soaks the rich?

Originally published on the Official Paul Krugman Site, 12.18.02