Here is the "Lucky Duckie" Wall Street Journal article. What do you
think?
REH
America divided by Democrats: "The Non-Paying Class"
Wall Street Journal ^ | Nov 20, 2002 | Editorial
The stars look to be in perfect alignment for tax relief. With a GOP
majority in both houses of Congress, the Bush Administration is making eager
and energetic noises, and the economy is in what Fed Chairman Greenspan
calls a soft spot.
But as the Republicans construct their tax plan, there is a large and
under-appreciated fact they would do well to keep in mind. Over the past
decade or so, fewer and fewer Americans have been paying income taxes and
still fewer have been paying a significant percentage of income in taxes.
While we would opt for a perfect world in which everybody paid far less in
taxes, our increasingly two-tiered tax system is undermining the political
consensus for cutting taxes at all.
Even the barest of glances at tax data reveal a system that is steeply
progressive. Tax revenue has been increasingly squeezed out of top earners.
According to the most recent data, from 1999, the richest -- with income
above half a million dollars -- constituted 0.5% of taxpayers but accounted
for 28% of total tax revenue. Simply put, a tiny group of people (553,380)
were responsible for more than one-quarter of the income tax take of $877
billion.
Well, maybe you're saying -- so what? They can afford it. Then take a look
at those who aren't Richie Rich. The most recent data from the IRS, in 2000,
show that the top 5% coughed up more than half of total tax revenue.
Specifically, we are talking about folks with adjusted gross incomes of
$128,336 and higher being responsible for 56% of the tax take. Eyebrows
raised? There's more. The top 50% of taxpayers accounted for almost all
income tax revenue -- 96% of the total take.
These numbers are more arresting when compared with the situation 14 years
earlier. In 1986, the top 1% paid 26% of revenue, the top 5% was responsible
for 42% and the top half contributed 93%. And what about the bottom half of
taxpayers? They accounted for 7% of the total in 1986 but only 4% in 2000.
This skewed reality is the result of a growing number of absolutely legal
escape hatches. Consider what happens to those in the lowest bracket. Say a
person earns $12,000. After subtracting the personal exemption, the standard
deduction and assuming no tax credits, then applying the 10% rate of the
lowest bracket, the person ends up paying a little less than 4% of income in
taxes. It ain't peanuts, but not enough to get his or her blood boiling with
tax rage.
Of course, lower-income workers are on the hook for the payroll tax -- but a
sizable group slip free from even that net tax liability via the refundable
earned income tax credit. ("Refundable" means that even if your net income
tax liability is zero, the government still writes you a check.)
These numbers represent only people who have a positive adjusted gross
income. In 1999, there were 127 million tax filers, 94.5 million of whom
showed an income tax liability. That is, 26% had no liability at all. The
actual number of people filing without paying comes to 16 million (after
subtracting those getting earned income tax credits and thus, presumably,
still somewhat sensitive to tax rates). So almost 13% of all workers have no
tax liability and so are indifferent to income tax rates. And that doesn't
include another 16.5 million who have some income but don't file at all.
Who are these lucky duckies? They are the beneficiaries of tax policies that
have expanded the personal exemption and standard deduction and targeted
certain voter groups by introducing a welter of tax credits for things like
child care and education. When these escape hatches are figured against
income, the result is either a zero liability or a liability that represents
a tiny percentage of income. The 1986 tax reform, for example, with its
giant increase in the personal exemption and standard deduction, took six to
seven million people off the tax rolls.
This complicated system of progressivity and targeted rewards is creating a
nation of two different tax-paying classes: those who pay a lot and those
who pay very little. And as fewer and fewer people are responsible for
paying more and more of all taxes, the constituency for tax cutting, much
less for tax reform, is eroding. Workers who pay little or no taxes can
hardly be expected to care about tax relief for everybody else. They are
also that much more detached from recognizing the costs of government.
All of which suggests that the last thing the White House should do now is
come up with more exemptions, deductions and credits that will shrink the
tax-paying population even further.
