More Tax Myths Busted

This is an outstanding article from Randall Hoven that blows away some critical myths about Obama's tax plans and statements:

Taxes are back in the news.  Barack Obama promises to raise them, but only on people making more than $250,000, or maybe $200,000, or maybe $150,000.  But really, he's going to cut them for 95% of us.  Trust him.  He's not going to cut them for the super-rich, and only the super-rich, like George W. Bush did.

This is a tired subject, but that doesn't stop Democrats from beating the same dead horse.  The good news is that we no longer have to depend on "experts" to get at the truth of things.  If you are reading this online, you have access to the internet.  Yes, you too can be a Fact Checker.  Here's what you do:

• (1) Go to the US Statistical Abstract at http://www.census.gov/compendia/statab/.
• (2) Select "Federal Gov't Finances & Employment".
• (3) Select "Federal Individual Income Tax Returns".
• (4) Click on Table 474, "Individual Income Tax Returns." You have a choice of Excel or PDF format.

It's also possible to go right to the data in one fell swoop.  Go to http://www.census.gov/compendia/statab/tables/08s0474.xls or http://www.census.gov/compendia/statab/tables/08s0474.pdf.

If you look at the data in just that one IRS table, you can debunk virtually every myth that Democrats have been propagating about taxes for at least the last eight years.  (For reference, AGI is adjusted gross income; it is how much you make before deductions.)

Myth 1:  Rich people don't pay taxes.

Fact:  Yes they do.  And be glad they do.  Those making over $200,000 in 2004, though being only 2.3% of all tax filers, paid 47% of all individual income taxes.

Myth 2:  But that's only because the rich make so much more money.

Fact:  That same group of tax filers accounted for only 26% of individual income (AGI).  Repeat: they made 26% of the money but paid 47% of the taxes.

Myth 3:  But the rich don't pay as high a percentage as the rest of us.

Fact:  Look at the column labeled "Income Tax as a Percent of AGI" and simply look at the numbers.  The higher the income, the higher percent paid in taxes.  In fact, the disparity is significant.  Those making over $200,000 paid an average of at least 21% in income taxes on average, while those making $30,000 or less (over half of all filers) paid 5% or less.  Repeat: the "rich" paid tax rates that were at least four times greater (300% more) than the median tax filer.

The only exception to this trend is in the very upper reaches of income.  Those making between half a million and one million dollars in 2004 paid 24% in taxes, while those making over $1 million paid 23%.  I'll let that one half of one percent of all tax filers fight over that 1% difference among themselves.  (If you are David Cay Johnston, you can get a book deal out of this dramatic 1% disparity.)

Myth 4:  Bush's tax cuts helped only the super-rich.

Fact:  Go to that same column labeled "Income Tax as Percent of AGI."    That column shows average tax rates in 2000 (before Bush's tax cuts) and 2004 (after the cuts).  Note that the tax went down for every single income group.  In fact, the lower the income, the greater the average percentage cut in taxes owed.

The lower half of all tax filers (among those even having to file) paid at least 50% less in 2004 than in 2000 for the same income level.  That's a 50% tax cut at least.  Those making $200,000 or more paid had their taxes cut just 16%, at most.

If anyone should be complaining about those tax cuts, it should be those making between $200,000 and $500,000.  Their cut was only 13%, but those making over $1 million got a 16% cut.  (Paging David Cay Johnston, hero to the half-millionaires.)  But let's be clear: every income group below $200,000 received an average cut of at least 21%.

Myth 5:  We should cut taxes for 95% of the people.

Fact:  What we "should" do is subjective, but what we "can" do is not.  If 95% of people do not even pay income taxes, how can you cut their income tax?  Not every one even has to file a tax return.  Of those that did, the lowest 18% paid zero income taxes.  Zero.  By the time you chop off the "rich" (those making over $200,000 in 2004), you have less than 80% to play with.

Of course, if you make up negative numbers for tax cuts, you can do anything.  If you call giving money to someone a "tax cut" (as opposed to letting him keep more of what he earned) then you can indeed "cut taxes" for those who don't pay them.  I think you have to go to Harvard Law to understand that logic.

By the way, when George W. Bush cut taxes, he cut them for 100% of the people who paid them.  (Check the IRS table.)

Myth 6:  The really rich know how to get out of paying taxes; they don't show up in these tables.

Fact:  This is the Dark Matter theory of rich people -- they exist, but no one can detect them, not even the IRS.  Even if true, those who made over $100,000 (that they couldn't hide) paid 68% of all income taxes while comprising less than 10% of all tax filers.  And if true, then we're even richer than we think we are: the rich are hiding out among the poorer tax filers or non-filers.  People we now think are poor, are really rich?  That would be good news, wouldn't it?

Myth 7:  But cutting taxes reduces revenues and therefore increases deficits and our debt load.

Fact:  Here we'll need a different table from the US Statistical Abstract.  Go to Table 455, Federal Budget - Receipts.  In 2006, after Bush's tax cuts were in full effect, the federal government took in 18.4% of Gross Domestic Product.  Now look at averages prior to 2000.  If you start taking the average in 1950, 60, 70 or 80, it doesn't matter; the average is less than 18.4% of GDP, just where it stood in 1989 after Reagan's tax cuts.  When President Clinton cut capital gains taxes in 1997, federal revenue went up.

As the top marginal rate on individual income varied between 28% and 92% over the last 60 years, the amount of federal revenue has consistently hovered around 18% of GDP that whole time.  In fact, revenues were generally less when the top rate was peaking at 91% and 92% (1951-1963).

Why would anyone think raising the top marginal rate would raise revenue?  Nothing in the last 60 years indicates any such thing would happen.  However, raising top marginal rates has been the Democratic Party's policy for the last 40 years.  That's something they don't want to change, apparently.

Myth 8:  The "rich" are somebody else.

Fact:  Not if the person saying that is a Congressperson.  A rank-and-file Congressperson makes $169,300 per year in 2008 in salary alone.  Nancy Pelosi, as Speaker, makes $217,400.  Even if they and their spouses make no other income, they are still in the top 5% and are all above Joe Biden's threshold of $150,000.  In fact, of 435 Congressmen, 123 of them made $1 million or more in 2003 (that is income, not net worth). 

Myth 9:  The Communist Manifesto's second plank is, "A heavy progressive or graduated income tax."

Fact:  That's not a myth.

These are not issues that can be argued, they are facts that are undeniable.  Don't let obnoxious Obots or the media browbeat, intimidate, or sucker you with any of these myths.  The beauty of the Internet and living in 2008 is that you have the facts at your fingertips and can verify all of this stuff yourself, so you don't have to believe them.  Without the economy and tax issues on his side, Obama is finished.

Just focus on the facts, spread the word, and let the truth do the persuading.

There's my two cents.