Monday, March 16, 2020
Wall Street Journal op-ed: The IRS Proves the Left’s Favorite Economists Wrong, by Phillip W. Magness (American Institute for Economic Research) & Stephen C. Miller (Troy University):
‘The Rich Really Do Pay Lower Taxes Than You” read a headline in the New York Times last fall. This astounding claim, presented in the media as fact and evidence of inequities baked into President Trump’s 2017 tax cut, came from two economists at the University of California, Berkeley. Emmanuel Saez and Gabriel Zucman asserted that 2018 was the first year in U.S. history that the average tax rate on the 400 wealthiest income earners dipped below the rates paid by the lower-middle class and poor.
Finally, we had proof the rich weren’t paying their fair share. But new data from the Internal Revenue Service suggest it isn’t true.
The Saez-Zucman analysis raised eyebrows among other economists who study tax data, in part because they claimed it reflected the first full year under the new tax rates. At the time they published their study, the IRS had yet to release the data necessary to make the calculations they described. Preliminary numbers for 2018 income-tax returns, covering all filings made by last year’s Oct. 15 extended deadline, came out only last week. These data tell a very different story: America’s wealthiest earners still carry the lion’s share of the tax burden.
Closer inspection reveals that Messrs. Saez and Zucman imputed the tax rates they claim for 2018 from records that predated the Trump tax cut, and therefore didn’t capture its effect on the measured distribution of income. They built in opaque assumptions that now appear to have exaggerated the tax cut’s benefit to high-income earners. ...
In their rush to embrace a convenient political narrative last fall, much of the press and political classes never considered the possibility that the data would undermine their story. It did.
Prior TaxProf Blog coverage:
- Gerald Auten (Office of Tax Analysis, U.S. Treasury Department) & David Splinter (Joint Committee on Taxation), Income Inequality in the United States: Using Tax Data to Measure Long-term Trends (Mar. 26, 2019)
- David Leonhardt (New York Times), The Rich Really Do Pay Lower Taxes Than You (Oct. 8, 2019)
- James Freeman (Wall Street Journal), New Problems With Elizabeth Warren’s Inequality Math
- Emmanuel Saez (UC-Berkeley) & Gabriel Zucman (UC-Berkeley), How To Tax Our Way Back To Justice (Oct. 14, 2019)
- Richard Rubin (Wall Street Journal), The Truth About Who Pays What In Taxes (Oct. 16, 2019)
- Laurence Kotlikoff (Boston University), Tax Myths Of Warrenomics (Oct. 24, 2019)
- Emmanuel Saez (UC-Berkeley) & Gabriel Zucman (UC-Berkeley), Although Wealth Taxes Have Failed In Europe, They Can Work In The U.S. (Oct. 31, 2019)
- Penn Wharton Budget Model, Warren Wealth Tax Would Slow Economic Growth By 13% (Nov. 17, 2019)
- The Economist, Measuring The 1%: Economists Are Rethinking The Numbers On Inequality (Dec. 7, 2019)
- Jason Oh (UCLA) & Eric M. Zolt (UCLA), Wealth Tax Design: Lessons from Estate Tax Avoidance (Feb. 6, 2020)