The Tax Wars.

Should the rich pay their “fair share”? In 1992 there were three tax brackets: 15%, 28%, and 31%. In 1993 the Democrats created two additional tax brackets on higher incomes: 36% and 39.6%. Thus, the Democrats imposed higher tax rates on high incomes.[1]

In 2001 the Republicans cut federal income taxes on all Americans.[2] Single tax-payers with taxable income up to $6,000, heads of households with taxable income up to $10,000 and people filing jointly with taxable incomes up to $12,000 had their tax rate reduced from 15% to 10%. Those in the 15% bracket had the lower threshold indexed to the new 10% bracket. The tax rate on people in the next bracket was reduced from 28% to 25% by 2006. The rate on the next bracket would be lowered from 31% to 28% by 2006. The rate on the next bracket was reduced from 36% bracket to 33% by 2006. The rate on the highest bracket was reduced from 39.6% to 35% by 2006. The biggest percentage cuts in the tax rates were at the bottom end of the tax brackets, the smaller cuts at the high end. The two highest brackets still were taxed at a higher rate than in 1992.

These taxes continued through 2012, when the 2001 cuts on the two top brackets were allowed to expire, while the rates on the other brackets were made permanent. To illustrate, the rate for single filers making up to $8,925 is 10%; on $8,925 to $36,250 is 15%; on $36,250 to $87,850 is 25%; on $87,850 to $183,250 is 28%; on $183,250 to $398,350 is 33%; on $398,350 to $400,000 is 35%; and on $400,000+ is 39.6%. So, most Americans live under the Bush Administration tax cuts, while the wealthiest Americans live under the Clinton Administration tax increases.

Under these systems, what do different income groups pay as a percentage of federal income taxes?[3] In 1991, before the Clinton tax increases on high incomes, the top one percent of income earners paid 24.82% of the income tax bill; the bottom 50% paid 5.48%. In 2000, before the Bush tax cuts, the top 1% percent of income earners paid 37.42% of the income tax bill; the bottom 50% paid 3.91%. In 2011, under the Bush tax cuts, the top 1% of tax payers paid 35.1%; the bottom 50% of tax-payers paid 2.89% of taxes. (The top 50% paid 97.1%; the top 25% paid 85.6%; and the top 10% paid 68.3%.)

Across three very different administrations and under very different economic situations, the tax burden has been continually shifted from the bottom 50 percent of taxpayers onto the top one percent of tax payers. The Democratic mantra that the Bush tax cuts “favored the rich” is absolutely untrue. (In all likelihood, the Republican mantra that tax cuts will stimulate economic growth is equally untrue. That needs to be the subject of a different jeremiad.)

If tax rates favor the bottom 50%, income distribution favors the top 50%.

The “hard times” experienced by many Americans don’t have anything to do with tax-dodging by the rich. They are more likely to be the product of big shifts in the American economy within a globalized world economy since the 1970s. Fighting over shares of a shrinking pie isn’t going to fix the problem. We need broadly shared economic growth.

[1] For the sake of comparison, in Canada the highest rate of national taxation—on incomes over $132,000—is 29%.


[2] Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).


[3] Kyle Pomerleau, “Summary of Latest Federal Tax Data,” Table 6.