Mr. Waghorne recently decided to challenge the Irish Time's assertion that Bush's tax cuts have favoured the rich. I admit, this seems like a challenge and a half. I'd have felt 'If they didn't favour the rich, why would he have made them?' was convincing enough proof.
This level of shabby thinking wouldn't do for the readers of FI Fie, however. Mr. Waghorne has gone to the trouble of
setting out his proofs in eight easy points. In response, the US Tax Gnomes have contacted us to offer a counterpoint. It also comes in eight easy points.
Gnomic contribution commences;
1. The top twenty percent of earners now pay a larger share of federal income tax than before the cuts."
Cherrypicking - in fact, three different kinds of cherrypicking:
(i) He looks only at federal *income* tax - the share of *Total* Federal Tax Liabilities paid by the top 20% has fallen.
(ii) He ignores the actual tax *rate*, which gives a better picture of tax burden as it is not distorted by changes in the distribution of pre-tax income (which I seem to recall have been rather favourable to the rich in the last 25 years or so).
(iii) O'Doherty spoke about the benefits accruing to the top 1%, but RW chooses to look only at the top 20%. Could this be because the top 1% of earners benefit far more than the 19% immediately below them? Effective tax rates (total and income tax only) for the top 1% fell sharply between 2001 and 2004.
"2. The share of federal income tax borne by all of the other quintiles fell."
Not actually true, but maybe we can put this down to confusion - RW may have been trying to say that the effective tax rates for the bottom 80% fell. Which they did, but not as much as they did for the top 20%, and much less than for the top 1%
"3. The bottom four-fifths of taxpayers pay only 22 percent of all tax. In other words, the top twenty percent of American earners stump up 78 percent of the tax take."
False. In 2006, The top 20% 'stump up' 64% of total federal tax liabilities (down from 65% in 2001). But even this doesn't tell the whole picture. RW simply ignores the state and local taxes that US taxpayers stump up for on top of federal taxes. Why? Because unlike the federal tax code, these taxes are regressive, so much so that as Brian Roach said in 2003 -
http://www.ase.tufts.edu/gdae/Pubs/wp/03-10-Tax_Incidence.pdf - the overall tax code is only slightly progressive, but "tax cuts to be phased- in under current legislation threaten to reduce or even eliminate any progressiveness from the U.S. tax system."
"4. Between 1979 and 2003 the total tax burden on the top quintile rose from 56 percent to 66 percent of income"
No it didn't. Here, RW is confusing tax *rates* with the share of tax revenues paid. Schoolboy error, really.
"5. The lowest quintile, the people with a claim to be in actual poverty, saw their share of the tax burden fall. The lowest twenty percent of earners are now down to one percent of the total tax burden."
Again, he is simply ignoring both the distribution of pre-tax income and all taxes outside of federal income tax and social insurance. The table he links to says the lowest 20% had 4.2% of pre-tax income, but Roach cites figures claiming they paid 12.5% of federal excise taxes and 4.3% of state and local taxes.
"6. The bottom quintile pay an effective tax of -5.9% while the second lowest quintile pay an effective tax of -1.1%."
More cherrypicking. Now he is focusing only on federal *income* taxes, ignoring the 8.1% effective social insurance tax rate paid by the bottom 20% which brings their *total* federal tax rate up to 4.8%.
"7. From 2000 to 2003, the share of all individual income tax paid by the lowest 40% of earners dropped from 0% to -2%."
Cherrypicking (see above).
"8. Antipoverty spending has risen under Bush. From 2000 to 2004 antipoverty spending rose from 14.9% of the federal budget to 16.3% percent."
This one actually appears to be true. Hey, one of eight ain't bad!