Facts matter: The super rich and middle class do not pay similar federal tax rates.

Local blogger and MATC instructor Michael Rosen suggests that we have an essentially flat federal tax system. In linking to a post that Rosen called "Cherry picking distorts Obama's tax proposals", WisOpinion titles it "Middle class and super rich pay similar federal tax rates."

This would be an interesting bit of news were it true. It is not.

Rosen relies on an article in the Los Angeles Times. That article but says it relies - without links or other specifics - on the Tax Policy Center. The Tax Policy Center, in turn, seems to rely on the Congressional Budget Office for effective federal tax rates. Let's go the the recent work of the CBO and see what that tells us.

In 2005, the top quintile consisted of households earning over $ 91,706. Contrary to Rosen's implication, taxpayers in that category pay an effective rate significantly higher than those with more modest incomes. With respect to incomes taxes, the effective rate for the top 20% was 13.9% compared to 5.9% for those in the fourth quintile ($57,661 to $91,705 in 2005) and $ 3.0 for those in the third 20% ($36,001 to $57,660 in 2005). (These numbers are different than the marginal rates because they are the average percentage of total income paid in federal income tax.) If we look at higher earners, the disparity gets larger - the effective federal income tax rate is 17.6% for the top 5% (average income of $457,400 in 2005) and 19.7 for the top 1% (average income of $1,299,300 during that year).

A typical response - and the one that Rosen makes is that we ought to consider all federal taxes. This isn't obviously correct. Social security taxes are capped at a certain income level because the amount that a person can collect in benefits are also capped. If I can't collect more than x dollars in benefits, the argument goes, why should I keep paying into the system after a certain income level.

But let's put that aside.

The CBO does just what Rosen wants to do, adding in social security, excise and corporate taxes. This reduces progressivity but certainly does not eliminate it. The top quintile has an effective rate of 25.2% compared to 17.3% for the fourth and 14.1% for the third quintiles. The top 5% pays 28.7% of its income in federal taxes while the top 1 % pays 31.4%.

So, if we define the super rich as the top 1%, these households pay do not pay a similar federal tax rate. In fact, they pay an effective tax rate that is more than twice that paid by those who are smack in the middle.

You can argue that this isn't progressive enough and there have been years of greater progressivity but these numbers are more or less comparable to what we have seen over the past thirty years. Indeed, the most dramatic decline in effective federal tax rates (considering all taxes) has not been among the rich, but among the poor and lower middle classes. From the last year of the Carter administration to 2005, the effective rate for the lowest quintile has gone from 7.7% to 4.3% and, for the second quintile, from 14.1% to 9.9%.

Rosen argues that the rich pay most of the federal income tax (and of all taxes) because they make a lot of money. That is certainly true. But the tax system remains progressive. According to the CBO, the top 1% earned 55.1% of total income in 2005 and paid 86.3% of the total income tax and 68.7% of all federal taxes.

Now, one can bemoan the fact that the top 1% make that much money, but the problem, if there is one, isn't the tax system.

*As a bonus for you real policy wonks, the CBO study may not precisely match other tables because it adjusts for household size and includes all pretax income. That doesn't change the story, but one could argue that the CBO slightly overstates the tax burden on higher income workers because it assumes that capital, i.e., the shareholders, pay corporate taxes. This is in keeping with what proponents of high corporate tax rates like to argue. Critics of corporate taxation argue that they tend to fall on labor and consumers. I don't think that this makes a huge difference here and, in any event, I would not expect to many who lean left on these issues to argue that corporate taxes are simply passed on to workers and customers.