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Undertaxed?

Posted By Don Boudreaux On July 29, 2010 @ 8:38 am In Myths and Fallacies,Other People's Money,Taxes | Comments Disabled

Here’s a letter to the Washington Post:

E.J. Dionne argues that rich Americans are “undertaxed” (“In American politics, stupidity is the name of the game [1],” July 29).  He quotes the Congressional Budget Office to explain why: “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.”

Mr. Dionne’s view of “undertaxed” is odd.  The IRS reports that in 2007 (the latest year for which data are available) the top 1 percent of taxpayers in the U.S. paid 40.4 percent of the total income taxes collected by Uncle Sam.  This percentage is well above the 24.8 percent of the income-tax burden borne by this group in 1987, the year after the 1986 tax reform.  Moreover, the top 1 percent of taxpayers now pay more federal income taxes than do the bottom 95 percent combined!*

If taxes are the price we pay for government services – rather than booty to be extracted simply because someone is unusually wealthy – then Mr. Dionne’s conclusion that rich Americans are undertaxed overtaxes credulity.

Sincerely,
Donald J. Boudreaux

* See the Tax Foundation’s Scott Hodge [2].  (New IRS data should be released any day now.)

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[1] In American politics, stupidity is the name of the game: http://www.washingtonpost.com/wp-dyn/content/article/2010/07/28/AR2010072804529.html

[2] See the Tax Foundation’s Scott Hodge: http://www.taxfoundation.org/blog/show/24944.html

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