The leading liberal tax fallacies understate the progressivity of the federal tax code and overstate the degree to which taxing the rich can close Washington’s budget deficits.
Surging budget deficits, a sluggish economy, and the forthcoming legislation to renew $4 trillion in expiring tax cuts are reigniting contentious debates on the US tax system. In a companion essay, I explore the leading conservative tax myths that tax cuts pay for themselves and that they induce “starve the beast” spending reductions to cut the deficit. Now, in the spirit of bipartisanship, here are the most common liberal tax myths that contradict the established tax data.
The leading liberal tax fallacies understate the progressivity of the federal tax code and overstate the degree to which taxing the rich can close Washington’s budget deficits.
The federal tax system is remarkably progressive. IRS analysis of income tax returns reveals the lowest-earning 40 percent of families paying a negative rate and the median-earning family paying an effective rate of just 2 percent. Meanwhile, the top 1 percent of earners pay an average income tax rate of 21.5 percent. When the IRS expands its analysis to include all federal taxes, the tax code remains progressive, with the bottom-earning 20 percent paying negative federal taxes, middle-earners paying around 11 percent of their income in federal taxes, and the top-earning 1 percent paying a nearly 30 percent tax rate.
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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
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