Only the Rich Pay Taxes (update)

The IRS keeps a handy-dandy spreadsheet on the federal income tax. The latest version, for 2005, is here (xls).

The IRS’s spreadsheet shows that “only the rich pay taxes,” well income taxes, anyway.

Stephen Moore, boss of the Club for Growth, writes that he talked to his pal at the Treasury, and the latest results are about to come out. The new numbers will hit a major milestone.

The 2006 numbers will show, for the first time, that the top one percent of federal income tax filers will be paying over 40 percent of federal income tax. The bottom 50 percent pay three percent. In other words, the rich pay the overwhelming share of the income tax.

In 2005, the rich earned 21.20 percent of the income and paid 39.38 percent of the income tax. The bottom 50 percent paid just under four percent of the income tax burden.

As the graph below shows, the share of tax paid by the rich has been going up for the last decade.

The other two lines on the chart show the top income tax rate—which has been going up in Democratic administrations and down in Republican administrations—and the top capital gains rate. If the amount of tax paid by the rich responds to changes in the top marginal tax rate then it is almost certainly responding to the cap. gains rate, which is a tax on profits.

Moore says that two-thirds of the returns of the top one percent are from small businessmen and women.

Many liberals, of course, are outraged that the rich have been getting so much richer. But in a capitalist system like today’s, where startling changes and inventions are changing the market place you will see startling profits, just like the late nineteenth century when Rockefeller amd Carnegie made fabulous fortunes by lowering oil prices by 90 percent and steel prices by two-thirds.

And with the low tax rates on realizing capital gains, the rich are willing to expose their profits to the taxman.

Sen. Barack Obama, of course, wants to change all that. And change, have no doubt, is what he will get.