Secrets and Tax Lies

The Economist Magazine ran an article called "Aprils' Hard Truth" in its April 15th edition that I found interesting. And last night, I heard a similar story on NPR. The upshot is that the share of income taxes paid by wealthy Americans has increased since 2001. The difference in the two stories was impressive. I highlight them both here because for starters, the Bush people are going to try and sell the idea that the Bush tax cuts need to be made permanent, something Congress is set to look at pretty soon. And if people are just listening to commentator spins without considering the implications, then they will buy into the entirely wrong idea.

The argument on NPR's Marketplace Report was that the rich pay more taxes. According to commentator and Wall Street Journal editorial board member, Steve Moore, the rich are not benefiting from Bush's tax cuts. They are earning less of total income and paying more of the total income. He sites IRS statistics that say "the percentage of federal income taxes paid by those who make more than $200,000 a year has actually risen from 41% to 47% in recent years". He says that the number of people earning over $50k a year has increased from 3 out of 10 people to 4 out of 10 people since 1990 (It only took 16 years!). All of this, he concludes is due to Bush's tax cuts that are "pumping steroids into the US economy creating 5 million new jobs".

I point this out because there are a number of things this slick commentator doesn't say. The Economist article accurately points out that measuring tax progressiveness and thus fairness by the percentages paid by each income group is unreliable. That can vary widely depending on a host of other factors such as a stock market crash, a housing bubble burst, inflation, etc. Then there is the difference between income taxes and payroll taxes, which hit the poorest 60% of tax payers the hardest.

Mr. Moore doesn't say that rising fuel prices and inflation are pushing up costs of living while slowly eating away at the purchasing power of a dollar. So people earning $50k now do not have the same purchasing power that they had in 1990. He doesn't tell you the percentage of the 5 million new jobs that are actually fair paying, full time positions with medical insurance and 401K plans. He doesn't point out that more families that are now considered "middle class" in terms of income and are getting hit with the AMT. Nor does he discuss marginal income tax rates, which haven't really changed for may people, and in some instances have actually increased.

The Economist is less concerned with promoting Bush's tax cuts and more focused on demonstrating why the US tax code needs to be overhauled. They point out the maze of temporary credits and write-offs, some that actually cause increases in marginal income tax rates for families. The number of pages in the U.S. code have increased by 40% over the last 6 years and there are now 582 different tax forms issued by the IRS.

If you have a system so complex that the citizens can't even penetrate or understand it, it is unjust by its very nature. So my advice: don't get "snowed" (by either Secretary Snow or Press secretary Snow) into believing that the tax cuts should be made permanent. We need a whole new tax system.