Debunk This by Matt Palumbo

Two recent viral articles from the Washington Post and New York Times reported on some startling conclusions of a new study – that for the first time in U.S. history, billionaires are paying a lower tax rate than the working class. Liberals have been under the impression that billionaires are getting off easy when it comes to taxes for decades now, and for the first time they have their proof – but not really.

To quote from the Post:

“The Triumph of Injustice,” by economists Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley, presents a first-of-its kind analysis of Americans’ effective tax rates since the 1960s. It finds that in 2018, the average effective tax rate paid by the richest 400 families in the country was 23 percent, a full percentage point lower than the 24.2 percent rate paid by the bottom half of American households.

In 1980, by contrast, the 400 richest had an effective tax rate of 47 percent. In 1960, that rate was as high as 56 percent.

The analysis differs from many other published estimates of tax burdens by encompassing the totality of taxes Americans pay: not just federal income taxes but also corporate taxes, as well as taxes paid at the state and local levels. It also includes the burden of about $250 billion of what Saez and Zucman call “indirect taxes,” such as licenses for motor vehicles and businesses.

You may have seen the claim pop-up on your social media recently, as the viral chart below created by the New York Times from the study’s data demonstrates visually:

Advertisement

 

As the American Institute for Economic Research’s Phil Magness noted, these findings are at conflict with decades of existing literature on taxation. For instance, the Congressional Budget Office has the top 1%’s total tax burden at 33.3% in 2016, while Saez and Zucman have that at a comparably lower 30%. Additionally, Saez and Zucman have overestimated the poor’s tax burden. The CBO has the bottom 20%’s federal tax burden at 1.7%, while the duo argues that rises to an astonishing 25% with state and local taxes included. While state and local taxes are regressive (the top 1% pay 7.4% of their income in it and the bottom 20% pay 11.4%), that’s a far stretch from 25%. And in reality, when you factor in transfer payments and benefits, the poor technically pay negative tax rates.

Furthermore:

Bear in mind that Saez and Zucman have not yet officially released their figures or their underlying methodology.

First, as Zucman recently admitted on Twitter, their series removes the refundable portion of the earned income tax credit (EITC) from the bottom quintile’s federal tax burden. He claims this was done to separate the alleged “muddle” of transfer payments from the mix when looking at tax data, yet this produces highly misleading results.

The EITC is an intentional feature of the federal tax system designed to reduce its burden on the poor and provide eligible filers with an offsetting payment, thereby increasing the income tax’s overall progressivity. It is administered directly through annual tax return filings to the IRS and functions as an income-chained poverty-alleviation measure. For these reasons, the CBO incorporates the refundable EITC payment into its federal tax-distribution figures and has consistently done so over the past 40 years.

The average EITC benefit is over $3,000, meaning they over estimated the tax burdens of its beneficiaries by at least $3,000.

The second problem arises from Saez and Zucman’s treatment of data in the last two years. As noted, the most recent CBO release is from 2016. Yet Saez and Zucman purport to present more recent estimates, including last year.

There’s a reason why the CBO series lags in date. The IRS has yet to release its official income tax statistics for 2018, which raises the question of how Saez and Zucman are able to present estimates for a year in which we have extremely incomplete data.

And that’s not all. Magness also notes that Saez and Zucman claim to have data on the top 400 income earners dating back to the 1960s, but the top 400 earners have only been tracked since the 1982 by Forbes Magazine, and the IRS’ data on the top 400 earners begins in 1992.

Furthermore, Saez and Zucman can’t even seem to agree with themselves. As economist Wojtek Kopczuk noticed, their prior published research on taxation just last year estimated far higher rates than this recent headline-grabbing study. For example, they estimated that the top 0.01% paid an average tax rate of 40.8% in 2014, but now claim the figure is 29.4%. What possibly could’ve caused them to revise his estimates downward? Whatever the reason is, they haven’t told us.

Professor Kopczuk says that Zucman has since “unfollowed” him on Twitter since he voiced his concerns, which have yet to receive a response.

Regardless of all the flaws, Zucman did at least appear to be very happy that Elizabeth Warren noticed his “research.”

Advertisement

https://twitter.com/gabriel_zucman/status/1181300336033587201

Saez and Zucman purport to have discovered that billionaires are now paying a lower tax rate than everyone else, but to do so they had to greatly exaggerate the tax burdens of lower earners, have new estimates of historical taxes on the wealthy that conflict with their prior recent research, and we have no clue whatsoever how they obtained data from 2018 that doesn’t yet exist that. Would it have killed the alleged journalists over at the Washington Post or New York Times to ask? Apparently so.