A common refrain on the left is that lower- and middle-class Americans shoulder the majority of the tax burden in this country, while the ultra-rich skate by paying far less than their “fair share.”
Economists Emmanuel Saez and Gabriel Zucman have even dropped a new book, “The Triumph of Injustice,” that aims to present data that supports the belief that the rich are getting away with a heist through the tax code. There’s just one problem — Saez and Zucman’s data differs from just about every other analysis.
On its face, Saez and Zucman’s conclusion is stunning— their data appears to show that the top 400 wealthiest taxpayers in the country paid a lower effective tax rate than the bottom 10 percent of Americans in 2018. The 400 wealthiest Americans, they claim, paid an average 23 percent effective rate, roughly 3 percentage points lower than the average effective rate paid by the poorest 10 percent of Americans. If that were true, it would be shocking indeed.
Good thing it’s not. Reputable sources such as the Congressional Budget Office (CBO) don’t just disagree with Saez and Zucman’s data, they’re not even in the same ballpark. CBO data on all federal taxes, in fact, shows that the bottom 20 percent of Americans pay an average effective tax rate of 1.7 percent, while the top 1 percent pays an average effective rate of 33.3 percent. These numbers are more in line with what one would expect from a progressive tax code.
So where does the dramatic disparity in these numbers come from? It’s true that Saez and Zucman include state and local taxes in their analysis, which are generally more regressive than federal taxes, while the CBO does not. But Jason Furman, chair of the Council of Economic Advisers under President Obama, combined federal data with state-and-local data to show that total effective tax rates for the poorest 20 percent of Americans to show that they still only pay a tax rate slightly above 10 percent. The top 1 percent of Americans under his analysis pay an effective rate around 40 percent. In other words, even after accounting for state and local taxes, Saez and Zucman’s results are still way off the mark.
The reality is that Saez and Zucman get their numbers by leaving convenient gaps in the data. They exclude the refundable portion of tax credits such as the Earned Income Tax Credit and the Child Tax Credit from their analysis, despite the fact that these credits exist in large part to offset the regressivity of other elements of the tax code, such as the payroll tax. Deliberately ignoring a major element of tax policy is of course going to skew the data.
Saez and Zucman also whiff badly on the tax rates paid by the wealthiest Americans. This is in large part due to their inaccurately high estimates of the total income of the wealthiest Americans, which causes them to underestimate their effective tax rates. More sober estimates show that the wealthiest 0.01 percent of Americans pay an effective tax rate of approximately 50 percent when combining federal, state, and local taxes.
Saez and Zucman’s results add a great deal to the fervor of the higher-taxes crowd, but their results differ significantly from other mainstream analyses. Our tax system is far from perfect but it is, in fact, progressive. Policymakers and taxpayers alike should be wary of claims to the contrary.
Andrew Wilford (@PolicyWilford) is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to fiscal policy analysis and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.