Published: Saturday, April 3, 1999
Higher income, higher taxes
The lead story Feb. 28, ``Taxes soar for top brackets,'' gives the impression that the rich are to be pitied because they are unfairly burdened by excessive taxes.
It reports that total taxes paid by the rich (those with incomes over $200,000) rose 83 percent from 1993 to 1997, and says the increase is the ``result of a one-two punch of higher tax rates and a booming economy.''
The article is based on poor data analysis and the conclusions are misleading.
By itself, the tax rate increase of 1993 did not have much effect on the tax burden of the rich. If all Americans still earned what they did in 1993, the rate increase would have raised the total income tax contribution by families with incomes over $200,000 by only about 6.9 percent, not 83 percent.
There are two simple reasons that the tax contribution of the rich went up so dramatically, neither of which is adequately addressed in the article. First, the number of families earning $200,000 or more soared from 514,000 in 1993 to 4,542,000 in 1997. Second, the average income of those families rose from $244,000 up to $331,000. Because of these two changes the growth in income of families earning $200,000 or more far outstripped the growth in their taxes.
Compared with the experience of the past 70 years, the top tax bracket rate is extremely low. Except for the years from 1987 to 1992, you have to go back all the way to 1931 to find a top income tax rate as low as it is today. From 1951 through 1964, families with $200,000 in income faced a 91 percent marginal tax rate. That figure gradually declined, but as recently as 1986, after the first wave of Reagan tax cuts, the top bracket was still 50 percent. It is now just 39.6 percent.
The economic boom has led to a fabulous rise in the incomes of the rich, but the economy has not been so rosy for the average American. The median earnings of full-time employees have been stagnant since 1993. In historical perspective, the trends for the average American are discouraging. Median real earnings peaked in 1973 at $38,037 (1997 dollars); by 1997, they had declined to $33,674. For young men, the situation is even bleaker; the earnings of men ages 20 to 34 declined by over 20 percent during the past two decades.
In sum, as the rich have been getting richer, the average American has been getting poorer. This shift _ which has been going on since the early 1970s _ represents the most rapid change in the distribution of income in American history. As a result, America today is the most unequal of all the industrialized nations.
The Feb. 28 Star Tribune article stresses the hardships faced by the rich: ``Today, tax money is flowing to, not from, millions of poorer families. Meanwhile, the rich are paying more.'' It goes on to suggest that the proposed Republican tax cuts, targeted on the rich, are simply intended to redress the balance. But no redress is warranted. The rich are not being taxed unfairly. The lion's share of benefits of the economic boom have gone to the highest-income groups and they are, as a result, paying an increasing share of taxes. The logic is simple and eminently fair: They get more income _ they pay more taxes. It is stunning that the bonanza for the rich during the past five years is in effect being used as an argument for cutting their taxes.
_ Steven Ruggles, Minneapolis. History professor, University of Minnesota.
|© Copyright 1998 Star Tribune. All rights reserved.|