Senator Obama and the Democrats have long maintained that the Bush tax cuts have disproportionately helped the wealthy, shifting the tax burden to the middle class. Since I never believe anything either party says, I decided to check the tax figures myself.

I looked at two years, 2000 — the last year of the Clinton era — and 2006, the most recent year for which the government has published detailed tax statistics. All of the data was obtained from the IRS website¹.

I started with the lowest income level — tax payers earning $20,000 or less:

	2000 (Clinton)	2006 (Bush)
# of tax payers (millions):	~50	~35
% of total tax payers:	39%	35%
Taxes paid (millions):	$16,639	$7,875
Average taxes paid:	$332	$165
% of total taxes paid:	1.7%	.8%

Not a large difference, but this group clearly did better. The average tax was bill was cut in half along with their share of the overall tax burden. However, they weren’t paying much to begin with.

What happens if we include a higher tax bracket — people making $50,000 and less?

	2000 (Clinton)	2006 (Bush)
# of tax payers (millions):	~93	~111
% of total tax payers:	85%	67%
Taxes paid (millions):	$132,256	$85,758
Average taxes paid:	$1622	$930
% of total taxes paid:	25%	8%

Now I’m getting confused. It looks like this group did pretty well too. I was expecting their tax burden to have gone way up. Instead, their share of the overall tax burden dropped from 25% to 8%, and their average tax liability dropped by 43%.

Let’s continue moving up the food chain and look at the taxpayers earning $100,000 or more.

	2000 (Clinton)	2006 (Bush)
# of tax payers (millions):	~11	~16
% of total tax payers:	6%	8.7%
Taxes paid (millions):	$632,704	$753,696
Average taxes paid:	$58,287	$46,659
% of total taxes paid:	65%	74%

Now wait a minute! This group was supposed to making out like bandits. Instead, it looks like their share of the tax burden has gone way up. I though Senator Obama was saying that the well off — those making over $100,000 — weren’t paying their fair share and unfairly benefited from the tax cuts. This group is now paying 74% of all taxes to the tune of $121 billion more. True, they did see an average 20% reduction in their individual tax bill — much less than the 43% reduction in the $50,000 and under group — but as a whole, they are paying much more in taxes. Economic expansion increased the size of the group by just under 3%, but the tax burden has gone up by over 9%.

So… what happens when we look at even higher income levels, say $500,000 or more. Certainly this group must be better off.

	2000 (Clinton)	2006 (Bush)
# of tax payers:	635,816	943,399
% of total tax payers:	.3%	.43%
Taxes paid (millions):	$302,280	$367,273
Average taxes paid:	$475,422	$389,309
% of of total taxes paid:	31%	36%

What’s that? Less that 1% of the tax payers pay over one-third of all income taxes? Even with an 18% average reduction in the average tax, this group is paying 5% or $65 billion more in taxes, while the $50,000 and under group is paying $46 billion less. It seems to me that the tax burden has already been shifted to the well off. And at $1,000,000 or more the numbers are even more significant with .1% of the taxpayers paying 27% of the tax bill, up from 23% in 2000.

Well now I’m more confused than ever. So let’s look at a few more numbers.

	2000 (Clinton)	2006 (Bush)
Total # of tax returns (millions):	129	138
Tax returns with tax (millions):	97	93
% of returns with no tax:	25%	33%

That’s right! In 2006, we had nine million more filers and 5 million less payers. I wonder who is paying all of those taxes. According to Senator Obama, it is the underclass since clearly the wealthy aren’t paying enough! So 45 million tax filers don’t pay anything in income taxes — that’s about one-third of all taxpayers. I wonder what Senator Obama thinks the number should be, maybe 50%? If Senator Obama’s tax plan is not spreading the wealth and income redistribution, either I need a new dictionary or Senator Obama needs a new calculator.

But wait you say… the rich should pay more because they got a bigger slice of the pie. Let’s look at the $200,000 and higher numbers.

	2000 (Clinton)	2006 (Bush)
Adjusted Gross Income (trillions):	6.4	8
% of AGI ($200,000 or more):	25%	31%
% of tax burden	46%	53%

Oh well, I tried. They took in 4% more of the pie and paid 7% more for the privilege.

While we are looking at numbers, let’s quickly visit the claim that Senator Obama is going to raise taxes only on those making $250,000 or more, and provide 95% of all tax payers a tax cut. Unfortunately, the IRS doesn’t break out the $250,000 income level — but 3% of all taxpayers make $200,000 or more and they are currently paying over 53% of all income taxes. That’s right, more than half of all income taxes are paid by only 3% of the taxpayers. If you try to get to the top 5% of taxpayers, you need to include everyone earning about $125,000 (estimated), and they are paying close to 70% (estimated) of the tax burden.

Since numbers are so much fun, let’s look at the actual budget. Note that personal income taxes account for about one-third of the total Federal receipts.

	2000 (Clinton)	2006 (Bush)	(Change)
Federal Receipts (billions):	$2,025	$2,568	$543	27%
Federal Outlays (billions):	$1,789	$2,730	$941	53%
Surplus (deficit):	$236	($162)

I thought I heard that Federal receipts were down under Bush. Oh well… I must have misunderstood Senator Obama. Let’s see… a 27% increase in receipts and a 53% increase in outlays. Is this a revenue problem or a spending problem? Plus, all of this is before the estimated $2 trillion dollar outlay for the financial meltdown and the $1 trillion in additional spending proposed by Senator Obama.

So what gives? Why can’t Senator Obama and the Democrats see this. Can you say “Democratic Math”? Here is how it works.

Say you have two people — one paying $1000 in taxes and one paying $10,000. Now let’s give everyone a 10% tax cut; the first person gets back $100 and the second $1000. Is this fair? Not according to “Democratic Math”. The person paying $10,000 got 10 times more tax relief than the person paying $1000.

Let’s say we set the poverty level at $20,000 and we have 10 people — two earning less than $20,000 and eight earning more than $20,000. Clearly we have a 20% (2/10) poverty rate. Some time later after economic expansion, we take another look and we have three people earning less than $20,000 and 17 people earning more. Are we better off? According to “Democratic Math”, we have a 50% increase in poverty (up from 2 to 3). Of course, what we really have is a 15% poverty rate (3/20) for a 5% decrease.

I’ve always believed that everyone should pay their fair share. And according to the IRS numbers, the well off are paying a lot more and the less fortunate are paying a lot less. Isn’t that what we wanted?

What’s going on here should be obvious. Individuals can spend $1 much better than the government. By modestly lowering tax rates and growing the economy, not only does the government take in more money — the tax burden is properly shifted to the wealthy.

References:

¹ http://www.irs.gov/taxstats/indtaxstats/article/0,,id=98123,00.html