As I noted earlier, I would like to see higher tax revenue on Americans earning between $100,000 and $200,000 a year, though many of the arguments about the necessity of doing so are based on incorrect or misleading data. (It is not, in fact, arithmetically impossible to close the budget deficit without reducing domestic spending or raising taxes only on the affluent. The House Progressive Budget does so.)
William Galston joins in the argument for lowering the threshold of which households should have to face higher taxes. While I agree with his desire to see higher revenue raised from households in the low six figures, perhaps writing in haste, he makes a very puzzling claim. Galston seems to argue that the top 1 percent has been burdened with higher tax rates:
Of course, you might argue we’re short on revenues because the tax code has let the very wealthy off the hook in recent decades. Maybe so, but it’s hard to see that in the data. According to the Urban-Brookings Tax Policy Center, the effective tax rate for all federal taxes in 2009 was 18.2 percent. The effective rates by quintile were:
But maybe the real action is within the top quintile of income-earners, with the super-rich making out like bandits. Again, the Urban-Brookings numbers don’t support that story:
Top 1 percent 26.1
Top 0.1 percent 27.9
This is just a one-year snapshot, of course. What about trends over time? We know that the distribution of income has become less equal in recent decades, with those at the top commanding a larger share. You might think that the share of taxes paid by high earners has declined during this period, shifting the burden to those below. But according to the CBO, that hasn’t happened either. While the share of national income for the top quintile and the top 1 percent has risen considerably since the mid-1980s, their share of total federal taxes has risen even more.
This is a somewhat confusing passage, because Galston begins by discussing the tax rate paid by the rich ("the tax code has let the very wealthy off the hook in recent decades") and ends by discussing the share of taxes paid by the rich ("You might think that the share of taxes paid by high earners has declined during this period.") These, of course, are two very different concepts. In an era of accelerating income inequality, it is possible for the rich to pay a higher share of the total tax burden while also paying lower average tax rates. Indeed, that is exactly what has happened over the last three decades.
Galston bolsters his correct, but irrelevant, claim that the rich have paid a larger share of the tax burden by citing CBO statistics. But those statistics do not pertain to his point. The figures he links cite total effective federal tax rate, not share of income. Luckily, that is a correct measure of the burden faced by the rich. But it undercuts Galston's argument. Since the 1986 Tax Reform, the effective federal tax rate paid by the highest-earning 1 percent has ranged from a low of 28.8% to a high of 36.1%. Galston has just informed us that in 2009, the top 1 percent faced a federal tax rate of 26.1%. That suggests that the rich could absorb a sizable tax hike merely to restore the effective rates they have paid, with minimal suffering or economic consequence, over the last twenty-five years. Of course it's true that the top 1% have contributed a rising share of the federal tax burden over the last few decades, but as that results entirely from their growing share of the income pie, this hardly argues against raising their tax rate.
There are many persuasive arguments for the policy merits of raising taxes on households below the top 1 percent. The best, in my opinion, is that the most efficient way to raise revenues on the affluent is by reducing tax expenditures, which is hard to pull off without some impact on the upper-middle class. Attempts to make this case by implying that the top 1% has been squeezed to the limit don't have much persuasive power.