November 28, 2012
Bartlett: Tax Cuts, Tax Rates and Tax Shares
Last week, the IRS posted the latest individual income tax data for tax year 2010. Supporting the Republican worldview, the data show that the share of total income taxes paid by the rich increased; supporting the Democratic worldview, they show that the wealthy’s share of total income increased more, leading to a decline in their average tax rate. Sorting through these competing facts is a bit like determining whether the glass is half-empty or half-full, but I’m going to try.
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Forget about the merits of the argument for the time being, we have to tell everyone to stop using the "half full - half empty" phrase. The 'half full' part is okay, but half empty is empty. Empty is zero. Half of zero is zero. There is not such concept as 'half empty'. A half empty glass is an empty glass.
Really, that's the important thing here, not all this stuff about effective tax rates.
Posted by: David R. | Nov 28, 2012 8:37:45 PM
Bartlett's article is good, but it omits one crucial element. Bush's reduction of the capital gains tax rate was intended to induce the rich to sell their appreciated assets and pay tax on gains. The alternative of holding the assets due to high tax rates generates no tax revenue.
This objective was achieved, but progressives complained about it. So much inequality in reported taxable income! Let's raise the capital gains tax rate and drive that unsightly revenue away! The 3.8% ObamaCare tax will cause a drop in capital gains tax revenue from 2012 to 2013. California's increase to a top rate of 13.3% on capital gains will also have an effect. Further rate increases will cause further revenue losses.
Posted by: AMTbuff | Nov 29, 2012 10:44:06 AM
The tables Bartlett uses are irretrievably flawed. As he notes, taxpayers are classified by AGI, not by economic income. Unrealized capital gains are excluded, as is tax-exempt interest. Many extremely well-off individuals (I cannot call them "taxpayers," because they don't currently pay any tax) are therefore misclassified as dirt-poor. As a result, we can infer nothing whatever from the tables about the share "the rich" are paying. Garbage in, garbage out.
Posted by: Theodore Seto | Nov 29, 2012 12:46:34 PM