OLMSTED FALLS, Ohio -- “Facts are stubborn things”, President John Adams once said.
Of all the wonderful things said by our Founding Fathers, the above quote is my favorite. Just four words but very descriptive. It is, of course, based on obtaining accurate facts.
Nowadays we don’t know what to believe but the Internal Revenue Service is a source of very reliable data.
Google “Tax Foundation and 2021 tax update.” You will pull up an article highlighting the 2018 aggregated tax data, the most recent we have access to. Moreover, that data deal with the tax year following implementation of the Trump tax cuts. If you click on the PDF version, you will see all the IRS data.
If you pay even scant attention to the news, you have heard the unending litany from the president and his party and most in the mainstream media that the rich are not paying their fair share.
What does the data show?
Let’s focus on one of the bulleted summary points at the beginning of the article:
- The share of reported income earned by the top 1% of taxpayers fell slightly, to 20.9% in 2018 from 21% in 2017. Their share of federal individual income taxes rose by 1.6 percentage points to 40.1%.
There certainly is a high (the highest by far) progressive rate of taxation on this group of taxpayers. But how is it that the percentage share of income taxes paid by the top 1% (those above $540,000 of income) rose after the Trump tax cuts?
Taxpayers then and now can deduct the greater of their itemized deductions or the standard deduction. The amount of the standard deduction was doubled, but that didn’t offset another change that hit higher incomes.
Prior to the change in the tax law, itemizers had the ability to deduct taxes paid to state and local governments. Starting in 2018, itemizers had this deduction limited to $10,000 a year, a cut disproportionately impacting wealthier taxpayers, who lost many thousands of dollars of deductions from pre-2018 levels.
Other changes in the new tax law, however, strongly encouraged new entrepreneurial wealth creation and the pre-COVID macro-economy took off with record low unemployment levels and new levels of high employment by previously underserved minorities. It was good, fair tax policy, the kind of tax policy that we should maintain not do away with.
These facts on the top 1% are at odds with a recent, widely circulated publication by Propublica that insinuated that the rich as a whole pay less in taxes than the average citizen.
There were some legitimate points in that article, but it focused on the uber-rich (Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk) and was an aberration relative to the irrefutable 1% data noted above.
Let’s take the tax-the-rich argument to an extreme.
What if the government not just taxed but confiscated 100% of the 2018 income of the top 1% noted in the IRS data? That would raise $2.4 trillion.
That would be enough to just cover pre-COVID annual deficit spending (not even counting the $6 trillion of new post-COVID spending nor the additional $1.2 trillion in the bipartisan infrastructure bill).
The point being that the proposition that additionally taxing the rich would cover much of the new spending is a major falsehood and, history tells us, would damage the macro-economy and income tax revenues if implemented.
Facts are stubborn things.
Mark Altieri of Olmsted Falls is professor emeritus of accounting at Kent State University, where he taught the advanced tax courses, and special tax counsel to the law firm of Wickens, Herzer and Panza in Avon.
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August 15, 2021 at 04:31PM
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Are the rich paying their fair share? IRS data shows that share went up after Trump tax cuts: Mark Altieri - cleveland.com
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