The rich and taxes.

IT's not often you get attacked as a "liar" by Paul Krugman and a "clown" by a member of the UC Berkeley economics faculty on the same day, but that happened to me recently, in response to an NRO article I wrote on tax fairness. The Berkeley economist, Brad DeLong, scolded, "Everyone trying to do serious research ... finds their credibility dragged down into the gutter by this guy."

What had gotten the class-warfare crowd so worked up was my statement that no one can credibly call the Bush tax plan a "tax cut for the rich" because the rich pay a larger share of federal income taxes than they would have if Bush hadn't cut taxes.

My source is a study by the Treasury Department on tax shares paid by income groups. Treasury estimates that the top 1 percent will pay about 32.3 percent of all taxes this year. Treasury also estimates that absent the tax cuts, the top 1 percent would be paying only 30.5 percent of taxes, down 10 percent from 2001.

It's true that the rich paid a smaller share of their incomes in taxes in 2001, 2002, and 2003 than they did in 2000. But remember, 2000 was the year the stock-market bubble reached its peak. There were massive gains to the federal treasury in that year from taxes paid on capital-gains and stock-option income. Yet when the stock market crashed and the economy tanked, incomes of the rich plummeted and so did their tax payments.

The Left was exuberant over a recent Congressional Budget Office report concluding that the rich pay a smaller share of the tax burden under the Bush tax cuts. But there were two flaws with that analysis. First, the base year for the CBO study was 2000, the year when incomes and tax payments were anomalously high. Second, the study uses static analysis, a method I have argued for years is misleading. The CBO report concedes that it "does not account for incomes changing in response to the tax cuts." It assumes that people's incomes will rise at a constant rate whether taxes are cut or not. But the whole point behind supply-side tax cuts is to propel faster economic growth by reducing tax barriers to work, investment, and job creation.

Krugman and DeLong are apparently unaware that the monthly IRS tax-collection data indicate that tax payments are surging this year, and that as the recovery picks up steam--thanks in part to the tax cuts--the rich are beginning to pay more in taxes again and the budget deficit is finally starting to decrease. As a consequence of faster economic growth, the Treasury Department reports that tax payments by the rich will be significantly higher in 2004 than would have been the case absent the tax cuts.

One final point: Even if the CBO study were true, it still estimates that the richest 10 percent of Americans pay twothirds of total taxes, and that the richest 20 percent pay more than four-fifths. How much do critics want the rich to pay? Ninety percent? Ninety-nine percent? It's enough to make this clown want to cry.

RICH PAY MORE UNDER BUSH TAX CUT

IT'S NO LIE, PAUL

SHARE OF 2004 INCOME-TAX REVENUE

                        TOP 1%   TOP 5%   TOP 10%   TOP 20%

CBO Static Projection
  With Tax Cuts         32.3%    53.7%     66.7%     82.1%
Treasury Estimate
  With Tax Cuts         32.3%    52.8%     64.8%     83.0%
Treasury Estimate
  Without Tax Cuts      30.5%    50.2%     62.6%     81.8%