Monday, November 20, 2006

Do the rich pay their fair share in taxes?

Larry Lindsey, former adviser to President Bush and former ec 10 head sectionleader, says yes:

A comparison between a relatively high-income entrepreneur, of which I am one, and a "typical" worker might be illustrative.

Last year an entrepreneur similar to me would have paid federal taxes equal to 33.9% of total income. That is, income before any exemptions, exclusions, adjustments or deductions. By this measure all of the fringe benefits that an entrepreneur provides himself as a self-employed individual are included in income. His federal income taxes and the employer and employee shares of his Social Security taxes are all counted as "taxes."

For comparison, consider a married worker earning a salary of $75,000, who like our entrepreneur, has three children. To compute his total income on the same basis, I gave him the same level of benefits as an average worker and the same level of capital income as others making his income. I also followed convention to impute to him both his own Social Security taxes and all of those paid by his employer. On that basis, his average tax rate was 14.5%.

From today's Wall Street Journal. Update: Free link.