Wealthy? Give Me a (Tax) Break!

Wednesday, April 10, 2002

By Radley Balko

A curious thing happened when I filed my income taxes this year. I discovered that I'm filthy rich.

How do I know? Because the deduction I’m supposed to get for the interest I pay on my student loans phases out for "top earners." This year, under former President Clinton’s tax code, that deduction began phasing out for me. This means I’m rich.

I'm rich! My first inclination was to call up every ex-girlfriend I've ever had and let her know she missed her chance. After all, I’ll be dating supermodels soon. I broke out the Cockburn's 20-year Tawny Port, poured it carelessly (I can afford to spill now!), and split a snifter with my driver. I told my chef to fire up some filets and invite his family over for dinner — on me. I lit a fresh Macanudo with a rolled up, flaming $20 bill. I can do these things now. Because I'm rich.

I'm kidding, of course. In reality, I just came out of forbearance on one of my student loans. I still rent my house. When I do have a driver, it's only for ten or fifteen minutes, and my limo is usually yellow, with a lamp on top. My chef is always asking me if I want to make that a value meal. Still, according to the tax code, I'm "rich."

A new study by the Tax Foundation casts some light on the absurdities of the concept of "wealthy." During the fight over President Bush's tax plan last year, Democrats, you may remember, harangued the president as a man too sympathetic to the wealthy. As it turns out, wealthy is a fairly relative term, and the reason why the wealthy get the brunt of most Republican-sponsored tax breaks is because — get ready for this — the wealthy pay the brunt of the taxes.

In 1999, the richest 1 percent of Americans took in 19.5 percent of the income. But they paid 36.2 percent of the taxes. The figures are similar for the top 5 percent, who made 34 percent of the money but paid 55 percent of the taxes. So much for rich people escaping taxes with sneaky loopholes, sleazy accountants and offshore shelters.

Want to bust more stereotypes? The income cutoff for the richest 5 percent is just over $120,000. In a good-sized city, a college graduate in his late twenties could probably expect to make about $60,000 per year. If two people making this much money get married, they'd find themselves in the top 5 percent of income earners — the filthy rich. These aren't trust fund babies. They’re Gen-Xers from the suburbs with a bachelor's degree.

The top 25 percent of income earners (and this would include those same two Gen-Xers if they didn't get married) pay a whopping 83.5 percent of U.S. taxes. In contrast, the bottom half of income earners — that's 50 percent of all taxpayers — bear just 4 percent of the tax burden, while earning 13 percent of the income.

Anyway you slice it, rich Americans are paying far more than their share.

So when Democrats say that the latest Republican tax cut "only benefits the wealthy," we need to do two things. First, we need to remember just who the wealthy really are. Wealthy no longer necessarily means the aristocratic Louis Winthorpe III, Dan Akroyd’s riches-to-rags blueblood in Trading Places. Today, wealthy, as defined by the IRS, probably means the 28-year-old public relations account executive sitting next to you on the subway.

Second, we need to employ a little logic. If the richest Americans are bearing a huge chunk of the tax burden, then any sizable tax cut will, necessarily, disproportionately benefit the richest Americans.

Opponents of tax cuts also usually include the poorest Americans in their figures, who pay no income taxes at all. A tax break for someone who pays no taxes is in some places called free money.

Another nasty figure from Tax Foundation study shows that the tax gap is growing. The richest 1 percent paid just 19 percent of the total tax burden in 1980. As noted above, they now pay 36 percent.

This is cause for concern. When 50 percent of Americans pay just 4 percent of the taxes, what sort of tax policies do you think they’re going to endorse on Election Day? Egged on by Democrat demagoguery, the tax burden will likely continue to shift to the upper brackets, which will create even bigger gaps. It’s possible that, in the words of Sen. Barbara Milkulski, we’ll keep "going and getting it from those who’ve got it" until we drive our economy straight into the ground.

This is the sort of majority tyranny factionalism our more thoughtful founding fathers feared. In summarizing the argument of those concerned with factions, James Madison wrote in Federalist No. 10, "... measures are too often decided, not according to the rules of justice and the fights of the minor party, but by the superior force of an interested and overbearing majority."

For now, the majority’s interest is partially offset by the fact that wealthier people are more likely to vote. But as both parties fight for the loyalty of the middle class with tax credits, the tax burden will continue to climb the income ladder.

At the same time, politicians are wooing other loyalties with promises of more government services. Someone has to pay for all this. Increasingly, those people are our society’s most wealthy. And every dollar they pay in taxes is a dollar less they invest in job and wealth creation. It hurts them now. It’ll hurt all of us later.