The New York Times and Taxes

Do the rich really escape paying their "fair share of taxes? According to a prominent New York Times writer, they do.

I recently reported 
on a New York Times article about incomes in the United States and accused the NYT of misleading readers, while sticking to the facts, regarding average incomes.  The NYT article also went to some length to discuss the distribution of incomes, which I did not comment on at the time.

The NYT article was written by David Cay Johnston, who won a Pulitzer Prize in 2001 for his reporting on taxes.  He is the author of the book Perfectly Legal: The Covert Campaign to Rig Our Tax System  and is sometimes given credit for influencing Congress on tax policy.

As summarized by Business Week
"Johnston's thesis is simple: The rich are different from you and me. We pay taxes; they often don't. And the less they pay, the more it eventually costs us. Here is Johnston on the recent round of tax cuts: ‘The Bush Administration knowingly chose to squeeze the middle class...to give unhindered tax relief to the people with the very highest incomes.'"
Regarding his recent NYT article, I could neither find references for his numbers nor duplicate his arithmetic on income distribution.  (The inability to follow Johnston's numerology is an annoyance even to those who agree with his general thesis.)  However, income tax data is available to us all, and only a mouse click away.

The IRS now has online data for 2005 tax returns. I did some simple arithmetic with the IRS's data.  I divided the amount of "total income tax" by "adjusted gross income less deficit", for each income group.  The result of that division is the average tax rate for each AGI group, as actually owed to the IRS after all deductions, credits, etc.  Here are the results.


AGI ($1000's)                                     Tax Rate

Under 25                                             Less than 3.5%

25-30                                                   4.5%

30-40                                                   5.6%

40-50                                                   6.9%

50-75                                                   8.2%

75-100                                                 9.5%

100-200                                               13.2%

200-500                                               20.2%

500-1,000                                            23.8%

1,000-1,500                                         24.6%

1,500-2,000                                         24.6%

2,000-5,000                                         24.3%

5,000-10,000                                       23.5%

10,000 or more                                    20.8%


Additionally, almost half of all returns (49.6%) reported an AGI under $30,000.  On the other hand, only 2.7% of returns reported an AGI over $200,000.  In fact, the average filer with AGI over $200,000 owed over four times the rate of the poorer half of filers.  That half of tax returns with AGI under $30,000 owed just 1.2% of all personal income taxes.  Yet those making over $200,000 owed over 51% of all taxes.

How anyone can spin the federal income tax as squeezing the middle class and giving unhindered tax relief to the rich, or saying the rich do not pay taxes, is beyond me.  If anyone should be complaining, it should those making between $1 million and $2 million complaining about those making more than $10 million.  I'll let that 0.2% of all tax filers fight that out among themselves.

It may be part of Johnston's thesis that the rich or superrich simply avoid reporting income in the first place, and therefore do not even show up on the IRS's list of high AGIs.  He would not be alone in that suspicion.  I have three observations on that.

  • How would we know?  By what arithmetic can we find this "dark matter" of income if even the IRS can't?  Perhaps there are anecdotal cases, but how can we know the extent?
  • If there is an army of superrich who are not reporting their incomes, that means we Americans are even richer than we thought.  How many of those without health insurance are actually the secret superrich?
  • Even if true, the top 2.7% of tax filers (AGI over $200,000) owed over 51% of all taxes.  Not all the rich are getting away without paying taxes, that's for sure.
A straightforward reading of actual tax returns is that the rich pay taxes, they pay a much higher rate than the middle class (by at least a factor of four); in particular the richest 3% of filers account for over half of all taxes owed, and the income tax is definitely progressive.  But apparently, that insight won't get you a Pulitzer Prize or good book sales.

Comments can be sent to Randall Hoven at randall.hoven@gmail.com.
Do the rich really escape paying their "fair share of taxes? According to a prominent New York Times writer, they do.

I recently reported 
on a New York Times article about incomes in the United States and accused the NYT of misleading readers, while sticking to the facts, regarding average incomes.  The NYT article also went to some length to discuss the distribution of incomes, which I did not comment on at the time.

The NYT article was written by David Cay Johnston, who won a Pulitzer Prize in 2001 for his reporting on taxes.  He is the author of the book Perfectly Legal: The Covert Campaign to Rig Our Tax System  and is sometimes given credit for influencing Congress on tax policy.

As summarized by Business Week
"Johnston's thesis is simple: The rich are different from you and me. We pay taxes; they often don't. And the less they pay, the more it eventually costs us. Here is Johnston on the recent round of tax cuts: ‘The Bush Administration knowingly chose to squeeze the middle class...to give unhindered tax relief to the people with the very highest incomes.'"
Regarding his recent NYT article, I could neither find references for his numbers nor duplicate his arithmetic on income distribution.  (The inability to follow Johnston's numerology is an annoyance even to those who agree with his general thesis.)  However, income tax data is available to us all, and only a mouse click away.

The IRS now has online data for 2005 tax returns. I did some simple arithmetic with the IRS's data.  I divided the amount of "total income tax" by "adjusted gross income less deficit", for each income group.  The result of that division is the average tax rate for each AGI group, as actually owed to the IRS after all deductions, credits, etc.  Here are the results.


AGI ($1000's)                                     Tax Rate

Under 25                                             Less than 3.5%

25-30                                                   4.5%

30-40                                                   5.6%

40-50                                                   6.9%

50-75                                                   8.2%

75-100                                                 9.5%

100-200                                               13.2%

200-500                                               20.2%

500-1,000                                            23.8%

1,000-1,500                                         24.6%

1,500-2,000                                         24.6%

2,000-5,000                                         24.3%

5,000-10,000                                       23.5%

10,000 or more                                    20.8%


Additionally, almost half of all returns (49.6%) reported an AGI under $30,000.  On the other hand, only 2.7% of returns reported an AGI over $200,000.  In fact, the average filer with AGI over $200,000 owed over four times the rate of the poorer half of filers.  That half of tax returns with AGI under $30,000 owed just 1.2% of all personal income taxes.  Yet those making over $200,000 owed over 51% of all taxes.

How anyone can spin the federal income tax as squeezing the middle class and giving unhindered tax relief to the rich, or saying the rich do not pay taxes, is beyond me.  If anyone should be complaining, it should those making between $1 million and $2 million complaining about those making more than $10 million.  I'll let that 0.2% of all tax filers fight that out among themselves.

It may be part of Johnston's thesis that the rich or superrich simply avoid reporting income in the first place, and therefore do not even show up on the IRS's list of high AGIs.  He would not be alone in that suspicion.  I have three observations on that.

  • How would we know?  By what arithmetic can we find this "dark matter" of income if even the IRS can't?  Perhaps there are anecdotal cases, but how can we know the extent?
  • If there is an army of superrich who are not reporting their incomes, that means we Americans are even richer than we thought.  How many of those without health insurance are actually the secret superrich?
  • Even if true, the top 2.7% of tax filers (AGI over $200,000) owed over 51% of all taxes.  Not all the rich are getting away without paying taxes, that's for sure.
A straightforward reading of actual tax returns is that the rich pay taxes, they pay a much higher rate than the middle class (by at least a factor of four); in particular the richest 3% of filers account for over half of all taxes owed, and the income tax is definitely progressive.  But apparently, that insight won't get you a Pulitzer Prize or good book sales.

Comments can be sent to Randall Hoven at randall.hoven@gmail.com.