Fairness demands cut in top U.S. tax rate

July 31, 2012

Free Market Foundation

Opponents of the Bush tax plan are making every possible effort to stop the top income tax rate from being reduced to 33 percent from 39.6 percent.

Yet many of the top rate payers are small businesses that are not organised as corporations and report their profits on individual tax returns. According to the Treasury Department, 63 percent of those benefiting from a reduction in the top rate to 33 percent are small business owners.

Average Americans recognise the unfairness of the current tax burden. In March, Fox News and Opinion Dynamics asked registered voters what is the highest tax rate anybody should have to pay?

Amazingly, 52 percent said that no one should have to pay more than 20 percent in combined federal, state and local taxes.

Another 27 percent said that the most anyone should pay is 30 percent.

Thus, almost 80 percent of Americans implicitly favour a lower top rate than Bush is proposing.

Now, according to a May 4 report from Congress’s Joint Committee on Taxation, the average federal tax rate is 21.5 percent, rising from 9.2 percent on those with incomes below $10,000 to 27.9 percent on those over $200,000. Without any legislative action, by 2006 these figures will rise to 10.4 percent and 28.3 percent, respectively.

Furthermore, the JCT report proves the Bush tax cut reduces taxes roughly in proportion to the taxes people pay.

It shows there would be essentially no change in the distribution of total federal taxes before and after the Bush plan takes effect.

In 2006, those making over $200,000 will pay 32.1 percent of all taxes in the absence of a tax cut, and 32.2 percent with the tax cut (see figure http://www.ncpa.org/pd/gif/pd051401a.gif ).

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 14, 2001.

For text http://www.ncpa.org/oped/bartlett/bartlett01.html

For JCT study http://www.house.gov/jct/x-32-01.pdf

For more on Tax Fairness http://www.ncpa.org/pi/taxes/tax32.html#1