Fact Checking Claims About Taxes

Sense and Nonsense about Taxes

As we draw closer to the November elections, there is an inordinate amount of attention being paid to “disinformation,” and a great deal of fact-checking of candidates’ statements. So this seems to be an ideal time to fact-check some statements being made about “taxes.”

Who benefits from income tax cuts?

Consider these two statements

• Most of the benefits of the 2017 (Trump) tax cuts went to the rich.
• The tax code today is just as progressive (if not more so) than it was before the tax cuts went into effect.

Surprisingly, both these statements are true. The first statement is true but misleading. The second statement is simply true.

What is rarely said in policy debates is that for the most part, half the population isn’t paying income taxes at all. According to the Tax Foundation, the top one-half of taxpayers are paying 97.7% of all income taxes, while the bottom half pays a paltry 2.3%. So, it’s hard to think of a tax cut that wouldn’t confer most of the benefits on the top half of the income distribution.

That’s a good way to think about the 2017 tax reform.

Do the rich pay their fair share?

When Joe Biden says “the rich aren’t paying their fair share,” what is he talking about?

If we define the rich broadly (to refer to the upper half), their share is already approaching 100% and that is as high as it can go. But even if we are talking about the really rich, their share is quite high.

The top 1% (people who earned more than $682,577 in 2021) paid 45% of all income taxes collected that year. The top 10% (earning more than $169,800) paid three-fourths of all income taxes.

This reflects the fact that the United States has the most progressive tax system in the world. We tax the rich proportionally more than any other country.

Why is our income tax system so progressive?

Although they don’t like to talk about it, Republicans are the main reason. Going all the way back to Ronald Reagan, every Republican tax bill threw more and more people off the income tax rolls. Through this and other provisions, Republicans have been shifting the tax burden to the rich every time they have legislated on taxes, according to a study by the National Center for Policy Analysis.

Both private and government analyses confirm that the same is true of the 2017 tax reform law. In 2018, the top 20 percent of the income distribution faced a lower tax rate, but they paid a larger share of the total tax burden than the year before, according to the Congressional Budget Office.

Had Democratic opponents had their way, the share of the tax burden would actually be lower for the rich and higher for low- and moderate-income families than it is today.

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