by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Yes, you read that headline correctly. If politicians really want to see high-income earners take up a larger share of the federal tax burden, they would lower top marginal tax rates.
Stephen Moore explains why in his short but fact-filled book, Who’s The Fairest of Them All? Moore reminds us that the top marginal federal income tax rate dropped from 70 percent to 50 percent, and then again to 28 percent, during the Reagan administration in the 1980s.
Tax revenues also surged after the tax rate cuts. From 1980 to 1990 total federal revenues doubled in nominal terms from $517 billion to $1,032 billion, a 30 percent increase after inflation.
Whether or not the income tax cuts paid for themselves is an open question and almost beside the point. But what is beyond debate is that taxes paid by the wealthiest Americans facing the highest marginal tax rates increased every year during the ’80s expansion. The increase in tax payments at the high end of the income scale were an astonishing instant replay of the Kennedy tax cuts. The rich paid more after the income tax rate cuts in 1981.
In constant dollars, the richest 10 percent of Americans paid $177 billion in federal income taxes in 1980 but paid $237 billion in 1988. The remaining 90 percent of households paid $5 billion less in income taxes over this period. The wealthy earned more and they paid more. …
… [T]he share of total income taxes paid by the wealthiest 1 percent of all Americans actually rose from 18 percent in 1981 to 25 percent in 1990. The wealthiest 5 percent of Americans saw their tax share rise from 35 percent to 44 percent.
When did the “very richest Americans” (actually the highest income earners, to be technically correct) shoulder their highest-ever percentage of the federal tax burden? In 2005. After George W. Bush’s tax cuts.
At that time, the top 1 percent of income earners earned 21 percent of all income and paid 39 percent of income taxes. The top 5 percent earned 33 percent of the income and paid 57 percent of the taxes. The top 10 percent earned 44 percent of the income and paid 66 percent of the taxes. The top 25 percent earned 66 percent of the income and paid 85 percent of the taxes. The bottom 50 percent earned 13 percent of the income and paid 3 percent of the taxes.
Lower tax rates prompt high-income earners to waste less time looking for ways to lower their tax bills.