Sunday, May 04, 2008

Robert Reich fibs about Taxing the Wealthy

Robert Reich is straightened out by Tom Maguire [who straightened out Dan Rather for all time on fake documents. Little Rob is caught fibbing on economics, which as a Democrat is practically a full-time job. Except this time, instead of the usual class warfare, he merely lies about tax schedules:
Robert Reich gets some pixels at the NY Times Freakonomics blog; this demagoguery caught my eye:
Remember, almost all the economic gains of the last decade have gone to the people at the top. And they pay a relatively small percent of their income compared to what the people at the top used to pay. The marginal income tax on the highest earners was 93 percent under Dwight Eisenhower. It dropped to a little over 70 percent under John F. Kennedy. Now it’s 35 percent. It’s 15 percent if you’re lucky enough to be a private-equity fund manager or anyone else who can shift their income into capital gains.

Oh, please - actual taxes paid depends on the rate and the income base - back in the day, the "rich" had many more deductions available to them, as Reich well knows.

The CBO has calculated the effective Federal tax burden for different income groups from 1979 forward (1979-2002; 2004-5). The CBO includes an estimate of the effective Federal income tax, and the effect of all Federal taxes, including Social Security/Medicare and an imputed corporate tax.

For the top 1% of earners, the effective Federal income tax rate has been this:

1979 21.8%
1985 18.9%
1995 23.7%
2005 19.4%

Not quite the wild range one might have expected, given that the top Federal income tax rate was 70% when Reagan took over in 1981 and was first cut precipitously all the way down to 50%.

As to the total effective rate, here we go:

1979 37.0
1985 27.0
1995 36.1
2005 31.2

The big difference is in the imputed corporate tax rate, which is currently quite low. But that is not what Reich was talking about.

Well, he knows all this anyway.

But even a broken clock is correct twice a day:
A lot of the chat is quite sensible; I'll plug this:

Q: As an econ professor and Democrat I’m still having trouble with the protectionist talk of the two candidates. Do you think Obama is handling trade issues properly or should he be more pro-free trade?

A: While it makes sense to argue in favor of labor and environmental standards in trade deals (so long as they’re on a sliding scale, and poorer nations don’t have to reach the same standard as richer nations), I don’t think the candidates should feed the current frenzy against free trade.

The comments attached to Tom's post are interesting and thoughtful.

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