the national interest

A Peek Into the Fantasy World of the Persecuted Rich

Mitt Romney’s secretly recorded diatribe against the 47 percent of Americans who pay no income taxes revealed a lot of things about him, one of them being the degree to which he has come to share the paranoia of the rich that has flowered in the Obama era. The paranoia is very weird, not least because the rich have actually prospered under Obama while vast swaths of the populace have struggled, which is in character with the broader explosion of inequality over the last few decades. The recording also shows the degree to which Romney has joined the imaginary world of persecution inhabited by rich conservatives and undergirded by made-up facts.

Most of these myths take the form of wildly misleading statistics about the tax system. Taxes at all levels of government account for $4 trillion a year. Many of those taxes — most state and local taxes and federal payroll taxes — tax the poor and middle class at a higher rate than the rich. In part to compensate, the federal income tax does the opposite, hitting the rich at higher rates. The overall total is somewhat progressive:

Now, it is perfectly fair to argue that taxes should be less progressive or should not be progressive at all. But since that is not a popular position to advocate, and also because it fails to capture the feelings of persecution that have seized wealthy conservatives, the right has instead constructed its own pseudo-facts.  

Reason has a new poll out showing that Americans think the rich pay too much in taxes. Well, it doesn’t really show that. What it shows, according to the poll, is that 57 percent of Americans think “the top 5 percent of earners shouldn’t have to contribute more than 40 percent of the total federal income taxes paid to government.” That is higher than the actual share of federal income taxes paid by the top 5 percent.

Of course, this is a trick. Even tiny changes in the wording of a question can swing the result of a poll, so advocacy groups periodically issue polls with questions designed to produce results congenial to their point of view. This particular poll does a couple familiar tricks. It asks about “federal income taxes,” which are one of the most progressive parts of the tax code, and ignores the effect of other taxes, which fall more heavily on the poor and middle class. Its question about what share of federal income taxes the richest 5 percent ought to pay also fails to note what percentage of the income they earn. Kind of hard to answer that question without knowing, isn’t it? And most Americans dramatically underestimate the level of income inequality that exists. So, combine the trick of asking about “federal income taxes,” which most people don’t understand represents merely a quarter of the tax system that is unusually progressive, along with not informing them of the level of income earned by the rich, and you have, in effect, a pseudo-poll, a predetermined answer disguised as a question.

There are a few perennial statistical sleights of hand that make up the vast majority of the vast and growing literature of complaints that the rich are being overtaxed. The use of “federal income taxes” as a substitute for all taxes is the most common. That is the device that Romney repeated to his donors. It is literally true that nearly half of America is not paying federal income taxes. That is because the federal income tax is designed to carry the burden of progressivity in the tax system. If conservatives think there is some grand metaphysical difference between different types of taxes that makes it terribly unfair that this one kind of tax hits the affluent but spares the lower classes, then we could think of ways to make the income tax less progressive and other taxes more progressive. Or they could admit that they just object to progressive taxation. Failing that, the mere existence of a single kind of tax that happens to disproportionately hit the rich is not a sign of massive dependency or entitlement or class warfare. It’s a pseudo-fact plucked out of context to whip up class rage from the top down.

A runner-up is the trick used by the Tax Foundation here and endorsed enthusiastically by James Pethokoukis here. It involves presenting the proportion of taxes paid by the rich, which has risen, as evidence that their burden is rising. Here is the Tax Foundation’s chart:

Of course, the proportion of taxes paid by the rich is not just a function of their tax rate. It is also a function of their proportion of the income. If the rich were earning a growing proportion of the income, they would be paying a bigger share of the income taxes, even if their tax rate was constant (or even if it was falling, assuming their share of the total income grew faster than their rate fell.) And, in fact, the latter is what has occurred: The rich have earned a growing share of the income pie and enjoyed lower effective tax rates.

You want another chart, don’t you? Okay, here you go — the effective tax rates of different income strata over time, per the New York Times:

The rich are paying a higher share of the income tax burden entirely because they are making a higher share of the income. Not entirely — more than entirely, enough to compensate for their lower effective tax rate. This doesn’t prove that we can’t reduce taxes on the rich even more. But that is a hard, unpopular case for the right to make. Much simpler and more effective to craft a fantasy narrative of the persecuted rich.

The Fantasy World of the Persecuted Rich