Two months ago, the New York Times uncritically ran an article claiming billionaires pay lower tax rates than the bottom half of American earners. (I see this and related pieces circulated by my progressive friends.) The unsubstantiated and yet to be reviewed data came from economists Emmanuel Saez and Gabriel Zucman, a tease to promote their soon to be released book. Their claim is contrary to other economic entities that monitor and study taxation. Once the book was released, the methodology became public. The methodology conflicts with the methodology they used themselves just a couple of years ago in peer-reviewed research.
I am not a tax expert but I have tried to follow the discussion. Econofact gives one of the best brief summaries on the claim. (Are Taxes (And Also Spending) Progressive?) A couple of observations:
“In their book, Saez and Zucman reach conclusions that are at odds with a variety of previous studies. … What explains the difference? Relative to previous estimates, the current choices and assumptions made by Saez and Zucman generate higher estimates of income among high-income households, and of taxes on low-income households.”
“Considering only positive tax payments gives an incomplete picture of the tax system. Some taxes are “refundable” and actually offer credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These credits can create negative tax liability for households. For example, if a household pays $1000 in a given year but receives $1,500 in an earned income tax credit, on balance, they have paid negative taxes. Conventional analyses count programs such as the EITC and the CTC as negative taxes, but Saez and Zucman exclude these credits from their analysis, making the tax system look more regressive than other studies show.”
Taking this a step further, assume you have an income of $10,000 and tax credits that net you $5,000. You have $15,000 to spend. Assume the local sales tax is 10%. You pay $1,500 in local sales taxes. But these economists don’t count the credits. So the tax rate is effectively 15% because the denominator by which you divide $1,500 is $10,000, not $15,000. It artificially inflates the tax burden even more. They do other "unique" things like count health insurance premiums as taxes.
On a further note, these two economists are key economic advisors to the Elizabeth Warren presidential campaign and this book was written and released to give support to her political objectives, not as scholarly analysis.
I am not defending billionaires or the present tax system. A factual claim was made concerning billionaires and taxes. Is it true? Outside of these two economists, writing with a clearly partisan objective and using unorthodox methods, there is no support for the claim. A disdain for billionaires and passion about inequality does not make the claim true.
