Glenn Beck’s recent “Arguing With Idiots” video (made to promote his book by the same title) promotes itself as “truth for those who care to look” (in its opening theme song). But how much ‘truth’ does it actually contain? First, give the video a view.
Done? Good. Let’s break down the all of the claims into individual chunks and see which hold water.
- Claim: “In 2006, the top 1 percent paid almost 40% of the country’s income taxes.”
Status: True, but misleading.
Why is it misleading? Let’s see. The same set of data Beck uses also lists the top 1 percent’s share of the entire country’s wealth at a whopping 22.06 percent, more than a fifth of the entire country’s income. The reason for the discrepancy between high income earners paying a higher percentage of all income taxes is the progressive nature of the income tax system (higher tax brackets are taxed at higher levels). This is the inequity that Beck is railing against.
But two things stand out. The first is simply an observation that Beck’s argument, stripped of the national income share numbers as context, distort how the numbers are viewed. Consider this: even had the numbers been more in line with percentage of national income earned, it still would have sounded lopsided. Imagine that the numbers for 2006 had been that “1 percent paid 20 percent of the country’s income taxes.” This would actually be less than fair, given that the top 1 percent earned 22.06 percent of national income — yet it sounds lopsided.
The other point that stands out is that these numbers distort perceptions of tax contributions by only including the income tax. There are various kinds of taxes that Americans face, at each level of government (local, state, and federal). By picking a particularly progressive tax, Beck is able to manipulate the data to say what he wants.
If I wanted to make the case that American taxes are regressive (that is, the lower your income, the higher a percentage of your income is paid to taxes), I could do so quite easily through Mr. Beck’s strategy. By focusing only on the payroll tax, I could demonstrate that, since this particular tax is capped above a certain amount, it affects low income earners more than high income earners. Indeed, the effective tax rate for Social Insurance Taxes (payroll taxes) is 8.5 percent for the lowest fifth of Americans, but only 1.6 percent for the top 1 percent. Those aren’t shares, they’re tax rates. See how easy that was to cherry-pick data to make a point?
This this New York Times blog blog post has a good breakdown of the payroll tax:
Officially known as a “contribution,” the Social Security tax brings in almost as much revenue as the individual income tax, and is catching up. By June 2009, annual revenues for the payroll tax collections had reached almost 90 percent of individual income tax collections.
The Social Security part of the payroll tax is about 12 percent of the first $106,800 of employee earnings in a year. The Medicare part is about 3 percent of all payroll earnings (regardless of whether and how much employees make over $106,800).
As a result, people earning over $106,800 pay a lesser percentage of their earnings in payroll taxes than do people earning less than $106,800.
The highest-earning third of United States households pay more individual income tax than payroll tax. But the other two-thirds are paying more payroll tax than income tax.
Higher earners are still responsible for a disproportionate fraction of total taxes, but their share becomes less disproportionate as payroll taxes grow and individual income taxes shrink
The only way to get an accurate picture of the distribution of tax burdens across American society is to consider national income share compared to total tax burden, not only the income tax. So how much of total tax burden do the richest Americans shoulder? Well, according to this New York Times blog, which cites the liberal organization “Citizens for Tax Justice“:
in 2008 the share of total federal, state and local taxes paid by each income group was relatively close to the share of income that that group brings in, at least as compared to:
(Horizontal axis shows the income group. Taxes include all federal, state and local taxes (personal and corporate income, payroll, property, sales, excise, estate, etc.). Incomes include cash income, employer-paid FICA taxes and corporate profits net of taxable dividends.)
So, this chart attempts to balance all taxes (not just federal) that the various income groups paid against the share of the total income each group holds. Does the top 1% pay more, according to this chart? A bit, yes, but it is much more comparable to their income share than Beck’s focus on the income tax would have you believe. Why is this? Well, basically, because although federal taxes are mostly progressive (with some exceptions), state and local taxes are often regressive.
From a New York Times blog:
State and local taxes tend to be more regressive if they rely more heavily on sales and excise taxes, do not have a broad-based personal income tax, or have a personal income tax that is structured in a less progressive way (e.g., a flat-rate income tax).
So, when including state/local taxes (which vary according to area — some states do have progressive tax systems while others have a flat tax rate), total tax rates are generally in line with total tax burden.
And, as noted above, some federal taxes are still regressive, most notably the Social Security tax (payroll tax). Also, although high-earners pay less of their income in Social Security payroll taxes, they often make out better in Social Security than lower-income workers. From “Putting Our House In Order: A Guide to Social Security and Health Care Reform” by George Shultz (a former Secretary of State under Ronald Reagan, and a Secretary of the Treasury under Nixon) and John Shoven:
Social Security discourages long careers because its system, which is designed to help low-income Americans, winds up helping high-income workers who have short careers. An individual who earns just above the minimum wage over the span of a long career will be correctly identified by the Social Security system as having low lifetime earnings. However, an individual with relatively high earnings per year over a short career span would also qualify as a low average earner by Social Security calculations. This inconsistency occurs because Social Security figures out average earnings on the basis of the highest thirty-five years of earnings, which would include zeros for those years in which an individual had no earnings.
So high-income earners get to retire years ahead of low-income earners, and still receive the benefits, though since they are not working anymore, they’ve stopped contributing to the workforce. Whether or not this is fair or unfair, you’d expect to hear healthy debate about the issue. But you don’t. And why is that? Because it is easier to cherry-pick data about income tax distribution in order to rile people up about ‘unfair’ tax burdens.
- Claim: “The top 50% of earners paid 97% of the entire income tax bill.”
Status: True, but misleading, for the same reasons outlined above. Also, the same data Beck cites also states that the top 50%’s share of the income is 87.49%.
- Claim: The middle class only paid 3% of the tax burden.
First, we need to define what the middle class is. It’s kind of an amorphous term, so stick with me. FactCheck.org gives a lengthy discussion of what the middle class may be. Take a look:
It’s possible to come up with a definition of what constitutes “middle income,” but it will depend on how large a slice of the middle one prefers. If we look at U.S. Census Bureau statistics, which divide household income into quintiles, we could say that the “middle” quintile, or 20 percent, might be the “middle” class. In 2006, the average income for households in that middle group was $48,561 and the upper limit was $60,224. But we could just as reasonably use another Census figure, median family income. In 2006, the median – or “middle” – income for a family of four was $70,354. Half of all four-person families made more; half made less…
But others could have different definitions. Baker interviewed a man who earned about $100,000 a year and a woman who made $35,000, both of whom said they were middle class.
Public opinion polls show how slippery the term can be. An Oct. 2007 poll by the Kaiser Family Foundation, Harvard School of Public Health and National Public Radio asked 1,527 adults what income level makes a family of four middle class. About 60 percent said a family earning $50,000 or $60,000 fit that description. But 42 percent answered an income of $40,000 and 48 percent said $80,000 were both middle class…
Republic candidate Mitt Romney…defines “middle class” as anyone with an adjusted gross income of under $200,000…
Here, you can see a thinker from the conservative Heritage Foundation arguing that people with $250,000 incomes aren’t wealthy. Does that make them middle class?
So there’s a lot of debate on who, exactly is middle class. The site notes that politicians often change the term to fit their needs. Because of this, and because $200,000 seems a bit high, let’s bypass Mr. Romney’s definition. In fact, let’s give Mr. Beck the benefit of the doubt. Let’s find the lowest number there, and we’ll use that to define the floor of middle class. $35,000 looks like the lowest number up there to me. We’ll use that as the floor. So, in our definition, you need to make above $35,000 to be middle class.
Well, according to the data Beck uses, the top 50% (that non-middle class portion he’s talking about that pays 97% of America’s taxes) begins at $31,987. Which is below one of the lower figures we used to define middle class. Needless to say its much below some of the other proposed figures up there (notably those of Mitt Romney and the Heritage Foundation).
Now let’s take a look at tax brackets. If you make $31,987 or up and are filing singly, you’re either in the 25%, 28%, 33%, or 35% tax bracket. That’s right, out of the 6 tax brackets, you could be in 4 of them, depending on how much you make.
Some of what Beck says is true. Some is not. But pretty much all of it is misleading.