James Piereson: The Truth About the ‘One Percent’ – WSJ.com:

This crusade is based on three questionable claims. One is that the wealthy are mostly Wall Street bankers benefitting from rising stock and real estate prices, or executives who pay themselves extravagant salaries. Another claim is that such people unfairly benefit from a system that taxes capital gains at half the highest marginal rate paid by those who earn salaries and wages. Then there is the assertion that the “super rich” have abundant funds that can be taxed to improve the living standards of everyone else.

All of these claims are false.


Emanuel Saez of the University of California ( Berkeley ) has shown in a series of papers that, as he writes, “The top income earners today are not ‘rentiers’ deriving their incomes from past wealth but rather are the ‘working rich,’ highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age.

The typical “rich” person today is someone who works for a salary and accumulates stocks and bonds through savings, retirement plans and (for business executives) stock options.

From 1980 to 2010, as the top 1% increased their share of total before-tax income to 15% from 9%, their share of the individual income tax soared to 39% of the total paid, up from 17%. Most were paying federal taxes at the highest marginal rate: In 1980 that rate was 70% and in 2010 it was 35.5%—but it has now climbed back to 39.6%. The share of federal taxes paid climbed dramatically in those 30 years even as marginal rates were cut almost in half.

According to the White House budget office, in 2010 the federal government raised approximately $900 billion from the individual income tax, of which about $350 billion (39%) was paid by the top 1% of income earners. The remainder of total federal tax collections (nearly $2.2 trillion in total) was paid through corporate, payroll, estate and excise taxes.

Those who want to “tax the rich” to redistribute income to the poor and middle class usually propose to raise the marginal rates on incomes or the capital-gains rate, or both. Yet as Scott Hodge recently documented in these pages [4], it will not be easy to raise vast sums this way.

The individual income tax accounts for slightly less than half of federal revenue and the top 1% already pays a substantial share of that total. Most of the wealth owned by the top 1%, and especially by the “super rich” in the top 0.1%, is also held in stocks, bonds and real estate that are not subject to income taxes until sold. It is a fool’s errand to try to raise the living standards of the bottom 60% through higher income taxes on the top 1% or 0.1%.

Radicals for Capitalism

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