- The Washington Times - Wednesday, October 8, 2003

Evidence explaining how federal tax revenues have plummeted in recent years continues to accumulate. As we have noted on several occasions, contrary to the claims of Democratic class warriors, President Bush’s 2001 tax cut and its acceleration in 2003 in no way produced the veritable collapse of income-tax revenues that the federal budget has experienced over the past three fiscal years. Nor have the president’s tax cuts been the principal forces moving the federal budget from surplus to deficit.

The IRS recently released details for the 2001 tax year. The data confirm not only how dependent the federal government had become on the taxes paid by its wealthiest citizens, i.e., those within the top 1 percent and 5 percent income brackets. The IRS’ recently released information also demonstrates how large swings in the incomes of the wealthy can have major effects on total tax revenues.

In the 2001 tax year, total adjusted gross income (AGI) declined by less than 3 percent, falling from $6.42 trillion to $6.24 trillion. But total individual income taxes plunged by nearly 10 percent, or $92.6 billion, compared to 2000. Thus, individual income taxes fell by more than 50 percent of the decline in total AGI.

Class warriors will be happy to learn that the income of the top 1 percent fell by nearly $250 billion in 2001, or by more than 18 percent. But the income taxes they paid plunged as well, falling by $66 billion. That amount represents more than 70 percent of the annual decline in total individual income taxes. (However, virtually none of the 2001 decline in taxes paid by the top 1 percent can be attributed to the president’s tax cut, which effectively reduced the top rate in 2001 by only one-half a percentage point.)

To hear class warriors tell it, “the rich” never pay their “fair share.” Yet, indicative of how steeply progressive the federal income-tax system had become is the fact that the top 1 percent paid 37.4 percent of individual income taxes in 2000 while earning 20.8 percent of total income. The top 10 percent paid 67 percent of all income-tax dollars to the feds in 2000 while earning 46 percent of income. In 2001, half the nation’s taxpayers paid less than 4 percent of total income taxes while earning 14 percent of total income.

So, “the rich” weren’t the only ones to take a big hit after the stock-market bubble burst. The federal government and states like California, which had become addicted to the income taxes paid by the wealthy, also got a rude awakening.

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