Listening to progressives talk about the 2017 tax reform law, you’d come away thinking that the law was a massive giveaway to the wealthy. But as new data from the IRS shows, that’s simply not the case. In fact, as a percentage of federal individual income taxes paid, the wealthiest Americans are now shouldering an even greater portion of the burden than they were before.
IRS data on tax filings is generally released about two years after the filing deadline, so until this point we have had no official data on tax returns under the new tax code. Of course, the fact that the Tax Cuts and Jobs Act (TCJA) would make the tax code more progressive was apparent back in 2017 as well — but this just-released post-filing data provides definitive proof.
As a result of the TCJA, the share of federal income taxes paid increased for the top 1 percent from 38.5 percent in 2017 to 40.1 percent in 2018 — the 2018 tax year being the first with the TCJA’s changes in effect. On top of this, the share of income taxes paid by the top 5 percent, top 10 percent, top 25 percent, and top 50 percent all increased. The bottom 50 percent of taxpayers saw their share of federal individual income taxes drop from 3.1 percent to 2.9 percent.
None of these changes are massive, but they definitively put the lie to the claim that the TCJA benefitted the wealthiest Americans more than the least wealthy. Yet proponents of the notion that our tax code is skewed towards the wealthy may counter that this data appears as it does only because of income inequality. Even there, they’d be wrong.
In tax year 2017, the top 1 percent of taxpayers paid 38.5 percent of total individual federal income taxes despite earning 21 percent of the country’s adjusted gross income (AGI). In other words, they paid 183 percent of their share of AGI.
In tax year 2018, the 1 percent’s ratio of the share of income taxes paid to AGI only increased, paying 40.1 percent of income taxes on a lower 20.9 percent share of AGI — this time paying 192 percent of their share of AGI. Once again, this pattern holds true for all of the top 50 percent of taxpayers. The bottom 50 percent of taxpayers, on the other hand, paid 3.1 percent of federal individual income taxes, though they earned 11.3 percent of AGI.
That the individual income tax is heavily progressive is no surprise to those that understand how our tax system works, but those on the left often distort this reality in order to make the case for massive, sweeping new taxes on the wealthy.
For example, French economists Emmanuel Saez and Gabriel Zucman made waves of late with their book “The Triumph of Injustice,” which purports to show that the U.S. tax code is heavily regressive in order to justify their proposal for a wealth tax. Saez and Zucman used a combination of bad data and questionable assumptions to make this argument, including completely ignoring refundable tax credits (which greatly benefit the poorest Americans). Nevertheless, their shoddy and easily-refuted claims were amplified by theNew York Times and the Washington Post in a series of fawning columns.
Creating a tax policy that adequately funds our government without stifling economic growth or hurting low-income families is difficult enough when we can agree on basic facts. American taxpayers shouldn’t allow themselves to be misled when advocates of higher taxes attempt to distort these facts.
