Citizens for Tax Justice and Moral Outrage

(Note the first chart is from the Heritage Foundation, the second is from Citizens for Tax Justice)

The Wall Street Journal loves to claim that the richest in the country pay more than their fair share of taxes. But the Citizens for Tax Justice (you can guess where their sentiments rest just by reading their name - i.e. they have no understanding of the negative effects of making a system too progressive.) claim the WSJ does not play fair because they neglect payroll taxes - which for lower income taxpayers are their largest tax payments. So the issue is often not apples to apples.

On Thursday CTJ did a press release claiming that our system was not progressive enough - titled "Right-Wing Spin Machine Uses Misleading Figures to Argue that the Tax Code Is More Progressive Under Bush" They then ask "Do the rich pay too much in taxes? Has the tax code become even more progressive as a result of the Bush tax cuts?" And the answer, if you look at the data, is that the rich are paying a higher percentage of income taxes than they did before the Bush tax cuts were adopted. Even the CTJ recalculation shows that pretty clearly.

In order to understand the real situation here one must understand two things which the CTJ materials fail to explain. First, as the top chart shows personal income taxes account for about 45% of the total federal revenues while social insurance accounts for a third. But second, the way taxes are collected between the two sources is also a function of what the receipts are used for. In personal income taxes there is no connection between benefits and tax receipts but in social insurance taxes there is at least a remote one. Whether this is a good idea or not, that is a key assumption. You cannot easily figure out what percentage of a battleship you own by paying income taxes but you can figure out, based on your contributions, what level of benefits you can expect for paying FICA. In the personal income tax, the richest 1% received about 14% of the income and paid 25% of the taxes in 1990 and now they receive 21% of the income and pay almost 40% of the tax. The burden on the richest 5% is even more dramatic. They pay about 60% of the total income tax burden with 36% of the income. What that actually shows is that the Alternative Minimum Tax has extracted the most from the people below the most wealthy.

CTJ sets up a hypothetical where one "Big Jim" makes $1 million and 100 "Little Jims" (seems awfully sexist for a lefty front group) They try to make the case by saying that if income taxes are reduced, and social insurance taxes are not, that the less well off will end up with more burden. Their conclusion is that we should eliminate the income caps on social insurance taxes and thus make the system more progressive. Almost anyone but CTJ recognizes that a better solution than that would be to change the way social insurance taxes are collected. (Need I say that CTJ was one of the most vocal opponents of any consideration of thinking about privatizing social security?)