Paul L. Caron

Monday, March 16, 2020

The IRS Proves The Left’s Favorite Economists Wrong:The Rich Really Do Not Pay Lower Taxes Than You

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:

Tax, Tax News | Permalink


The "wealthy" do not pay any federal taxes. There are no federal taxes on wealth. None. They are constitutionally prohibited.

All federal taxes are on income.

We have lotslots of people in the us who are wealthy with not much income. Jeff bezos is one example. So many farmers have so much wealth and little income that we have a phrase for it: "land poor"

On the other hand we have lots of people with high incomes but no accumulated wealth. Pro athletes and actors are often in this category. In bonfire of the vanities Sherman McCoy was "going broke on $2mm a year" spending as fast as he got it.

This conflation of wealth and income is not only wrong and economically illiterate, it is misleading.

I know you know this and and you really shouldn't be doing this.

Some might argue that death taxes are taxes on wealth.

Technically they are not. They are transfer taxes imposed on the recipient and constitionally permissable

John Henry

Posted by: John Henry | Mar 24, 2020 3:07:38 PM

Not exactly surprising. We'll see what things really look like when solid data on the U.S. Gini coefficient for 2018 is available.

Ever since reading Pickety and Saez's research, in which they're as much advocates as analysts, I had a sneaking suspicion that they were cooking the statistics to justify their conclusions. I've found that with pretty much every left-of-center macroeconomic policy proposal these days.

Posted by: MM | Mar 16, 2020 2:00:58 PM