The big spenders in government love to gripe about taxes. Not that they are too high, but rather that too many rich people, and corporations aren’t paying their so-called fair share.
But this populist appeal is based on two economic fallacies:
- That higher tax rates mean rich people pay more in taxes; and
- That corporate taxes take money from rich corporations.
Let’s look at the claims about the rich. When President Ronald Reagan cut taxes in 1981 through 1983, his opponents said it was a “giveaway to the rich.” But IRS data show that these tax cuts actually increased the amount of federal revenues paid by the upper income brackets.
Consider: In 1981, before his tax cuts could take full effect, the top 1% of income earners paid 17.58% of all income taxes. By the time he left office in 1989, that same group paid 25.24% – almost a 50% increase in the share paid by the rich.
Conversely, after the Clinton administration pushed for tax hikes in 1993, the top 1% saw their share of income tax revenues drop from 29.01% in 1993 to 28.86% in 1994. In other words, when rates are cut, the rich spend less time looking for ways to hide their income. It’s only when taxes go up that the upper income class go running for the shelters.
Now, let’s look at corporations. In 2002, corporations paid $211.4 billion, compared to individual income tax revenues of more than $1 trillion. So are the corporations cheating the rest of us by paying so little?
Of course not. Any serious economist knows that the workers in this country ultimately pay all taxes.
The money corporations pay in taxes must first come from consumers. Higher corporate taxes mean higher consumer prices. It’s that simple.
So, why not cut the tax burdens on individuals by cutting the tax burdens on corporations?
And by cutting tax burdens across the board, wouldn’t more “rich” people pay more taxes?
Ahhh, but the real issue isn’t over how to get the rich to pay more in taxes, is it? It’s about blaming someone because the big spenders don’t have more to spend.