Class Warfare Hocus-Pocus

The favorite group for economic demonization is the "top 1%" which frequently comes in for criticism from the left (as though it's a crime to be wealthy). The latest canard running around is that the top 1% took in nearly 16% of the total income in the country. The Wall Street Journal points out today that those figures are clearly bogus:

As many others have done, Virginia's Democratic Senator-elect Jim Webb recently complained in The Wall Street Journal (article available here) of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980." Those same figures have been repeatedly echoed in all major newspapers, including The Journal. Yet the statement is clearly false. The top 1% of households never received anything remotely approaching 16% of personal income (national income includes corporate profits). The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic.

The architects of these estimates, Thomas Piketty of École Normale Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley, did not refer to shares of total income but to shares of income reported on individual income tax returns--a very different thing. They estimate that the top 1% (1.3 million) of taxpayers accounted for 16.1% of reported income in 2004. But they explicitly exclude Social Security and other transfer payments, which make up a large and growing share of total income: 14.7% of personal income in 2004, up from 9.3% in 1980. Besides, not everyone files a tax return, not all income is taxable (e.g., municipal bonds), and not every taxpayer tells the complete truth about his or her income.

You'll probably notice that there was no inclusion in their report about the percentage of income taxes paid by the top 1%. Those figures are readily available at this site. Here are the latest figures available (from 2003):

Top 1% paid 34.27% of taxes.
Top 5% paid 54.36% of taxes.
Top 10% paid 65.84% of taxes.
Top 25% paid 83.88% of taxes.
Top 50% paid 96.54% of taxes.
The Bottom 50% paid only 3.46% of taxes, and most of those people paid nothing.

Based on those tax figures, even if it was true that the top 1% received 16% of income, they're still getting screwed. That's why I've long been a proponent of the flat tax which hits everybody with an equal percentage. Everybody who enjoys the benefits of living and working in the United States should be participating in the income tax system. When you get to a position where nearly 50% of the people pay no income taxes at all, why should they be concerned when Congress passes some new tax raising spending measure? It creates a situation where the non-taxpaying citizens have the right to effectively steal from the taxpayers through their votes. That's not good for anybody.