Published on Real-World Economic Review Blog, by David F. Ruccio, July 31, 2012.
… The right-wing wants desperately to show—against all the evidence—that the rich are being taxed to death and that income inequality has dramatically decreased.
So, up steps William McBride to do their bidding. He uses Congressional Budget Office data to attempt to show (a) the federal tax burden has continued to shift toward individuals at the top of the income distribution, who now carry the lion’s share of the tax burden, and (b) income inequality has lessened and is now no better than it was in the mid-1990s.
The first problem, and a not-insignificant one, is that the data McBride is using stop in 2009. And, it’s true, inequality went down during the Great Recession (because of declines in capital gains for those at the very top), but now it’s starting to return to its former obscene levels (as corporate profits and capital gains have rebounded).
Second, McBride fails to mention income shares in his discussion of taxes. So, yes, while the federal tax burden of the highest quintile (20 percent of households) was 67.9 percent in 2009 (up from 55.3 percent in 1979), their share of before-tax income was 50.8 percent (up from 44.9 percent in 1979).
The third problem is, McBride focuses on federal income taxes but forgets about all other federal taxes, such as social insurance taxes, corporate income taxes, and excise taxes. So, the figure he cites—the top quintile pays 94.1 percent of all federal income taxes—falls to 67.9 percent when all federal taxes are included.
As for his claim of record progressivity of the federal tax code, he really is cherry-picking. The tax progressivity of all federal taxes based on the equalization of the distribution of income (calculated as the difference between the Gini indexes for income before and after federal taxes) was in 2009 exactly what it was in 1979 … (full text and chart: Top income shares and average incomes US 1979-2010).