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Rand Paul Is Right: Higher Income Earners Pay Enough Federal Income Taxes

10/18/2019

Earlier this week, Sen. Rand Paul (R-Ky.) appeared on ABC’s The View to talk about his new book, The Case Against Socialism. During the interview, Paul remarked that the “[m]ost people [who earn] below $50,000 don’t pay any income tax.” He added that the top 1 percent of income earners pay 40 percent of income taxes.

Unsurprisingly, the audience expressed disbelief, which, one can reasonably surmise, comes from the class warfare rhetoric of Democratic presidential candidates and congressional Democrats, who never fail to claim that higher-income earners don’t pay enough in income taxes.

Anyone who watched the Democratic presidential debate on Tuesday saw the class warfare rhetoric was very much at the forefront, particularly from socialist candidates like Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.). Sanders, for example, said, “[T]he American people do not want tax breaks for billionaires. They want the rich to start paying their fair share of taxes.”

Well, Paul was right. The top 1 percent do, in fact, pay a disproportionate share of income taxes compared to the share of taxable income earned. In fact, PolitiFact has already given Paul a “mostly true” rating. The statistic he used comes from the Joint Committee on Taxation (JCT), which, earlier this year, released its tax revenue projections for 2019. The report found that those who earn $50,000 or less have a negative tax liability and a negative tax rate.

Distribution of Federal Income Taxes for 2019

Now, it’s important to note that these data reflect the distribution of income taxes under the Tax Cuts and Jobs Act, which became law in December 2017 and took effect for individual income tax filers in tax year 2018. Additionally, these figures don’t include other taxes paid by individuals that are collected by the federal government, such as payroll taxes.

Some may say that the share of the income tax paid by the top 1 percent of income earners was higher before the Tax Cuts and Jobs Act became law. Although these figures came from a different data set, we’re previous explained that the top 3 percent of tax filers in tax year 2016 paid 51 percent of all income taxes, according to data collected by the Internal Revenue Service. Data for tax year 2017 are available, and we’ll explore what that data say below.

Who Pays the Individual Income Tax?

We had to estimate the income tax information for the bottom 50 percent, as the IRS doesn’t specifically include that data in the relevant file. Separating this out some, we can see that the top 1 percent of income earners paid 38.5 percent of income taxes in 2017 while the bottom 50 percent paid 61.5 percent of income taxes. Taking that a step further, comparing the top 1 percent to the bottom 99 percent, we can see that the bottom 99 percent paid 61.5 percent of income taxes.

The Top 1 Percent Pay Nearly 40 Percent of All Income Taxes

In keeping the spirit of last year’s piece on this subject, we looked at the top 3 percent of income earners compared to the bottom 97 percent. As the table below shows, in 2017, the top 3 percent of income earners earned 30.4 percent of taxable income and paid 52 percent of income taxes while the bottom 97 percent earned 69.6 percent of income and paid 48 percent of income taxes.

The Top 3 Percent Pay a Majority of All Income Taxes

Put simply, Democratic presidential candidates, as well as congressional Democrats, aren’t being honest about income taxes. Confiscatory taxation, which is what many Democrats appear to want, would reduce the incentive to work and harm investment in the economy. That would translate to lost economic growth and fewer available jobs.

We have to stop treating “wealth” and “profit” as dirty words. Where does one think jobs come from? Without wealth and profit, the incentive to create goods and services wouldn’t exist and, therefore, jobs wouldn’t exist. This is what distinguishes a mostly free economy, like we have in the United States, from a largely centrally-planned socialist economy that rations goods and services.