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I would like to make four points:

• The federal tax system is highly progressive.
• The 2001 and 2003 tax cuts are not "tax cuts for the rich.
• Attempting to promote progressivity by taxing saving and investment is harmful and counter-productive.
• Well-designed policies can increase progressivity while strengthening the economy.

The Federal Tax System Is Highly Progressive

Those Americans who have reached the top of the economic ladder have clearly derived great benefit from our country’s institutions. It is certainly reasonable to ask them to pay a substantial share of the costs of government, including the costs of supporting the less fortunate. It is often not recognized, however, that the current tax system already places most of the cost of government on higher-income households. 

This can be seen from Figure 1, which depicts the allocation of the federal tax burden across income groups in 2004, as computed in a recent Congressional Budget Office (CBO) publication. The data include nearly all federal taxes--individual and corporate income taxes, social insurance taxes (primarily the Social Security-Medicare payroll and self-employment taxes), and excise taxes. CBO classifies households into different income groups, based on household income divided by the square root of household size.

 Click here to view all figures and the complete text of the testimony as an Adobe Acrobat PDF.

Alan D. Viard is a resident scholar at AEI.