* Clarence J. TeSelle Professor of Law, University of Florida College of Law. I would like to thank Alice G. Abreu, Christopher H. Hanna, Paul R. McDaniel, David M. Richardson, and James R. Repetti for their helpful comments on earlier drafts of this Article. All opinions expressed herein and any remaining errors are my own.
1 See Matthew 25:29; Robert K. Merton, The Matthew Effect in Science, 159 Science 56, 58 (1968).
2 Merton, supra note 1, at 58.
3 Paul Samuelson, Economics 80 (11th ed. 1980).
4 Joseph E. Stiglitz, The Roaring Nineties (2003) (referencing cover).
5 Daniel H. Weinberg et al., Fifty Years of U.S. Income Data from the Current Population Survey: Alternatives, Trends, and Quality, 89 Am. Econ. Rev. 18, 20 (1999) (indicating growth in the median family income from $20,102 to $44,368 (in 1997 dollars)).
6 Cong. Budget Office, Effective Federal Tax Rates, 1979–1997, at 6, 7 & fig.1-5 (2001), available at http://www.cbo.gov/ftpdocs/30xx/doc3089/EffectiveTaxRate.pdf (last modified Nov. 13, 2001).
7 See id. at 10, 11, 170–71 app. J. Although the Congressional Budget Office did not include comprehensive data for years after 1997, the study states that the rapid rise in the share of income going to the top of the distribution continued at least into 1998 and 1999. See id.
8 See Weinberg et al., supra note 5, at 21.
9 Thomas B. Petska et al., New Estimates of the Distribution of Individual Income and Taxes, in 2002 Proceedings of the 95th Annual National Tax Association Conference on Taxation 342, 350 (2003).
10 Id. at 349.
11 All references to the “Administration” or the “Bush Administration” are to the George W. Bush Administration unless otherwise indicated.
12 See infra notes 20–75 and accompanying text.
13 See infra notes 76–208 and accompanying text.
14 See infra notes 109–204 and accompanying text.
15 See infra notes 321–460 and accompanying text.
16 See infra notes 461–521 and accompanying text.
17 See infra notes 522–562 and accompanying text.
18 See Richard M. Coughlin, Whose Morality? Which Community? What Interest? Socio-Economic and Communitarian Perspectives, 25 J. Socio-Econ. 135, 143 (1996) (arguing that communitarianism balances individual rights and individual responsibilities). For more information on communitarianism generally, see Amitai Etzioni, The Spirit of Community: Rights, Responsibilities and the Communitarian Agenda 261 (1993).
19 See infra notes 563–577 and accompanying text.
20 F. Scott Fitzgerald, The Rich Boy (1926), reprinted in The Short Stories of F. Scott Fitzgerald 318 (Matthew J. Bruccoli ed., 1989).
21 See U.S. Census Bureau, Historical Income Inequality Tables, http://www.
census.gov/hhes/income/histinc/ineqtoc.html (last revised May 13, 2004). See generally Arthur F. Jones & Daniel F. Weinberg, U.S. Census Bureau, Pub. No. P60-204, The Changing Shape of the Nation’s Income Distribution, 1947–1988 (June 2000), available at http://www.census.gov/prod/2000pubs/p60-204.pdf (last modified Aug. 24, 2000).
On the Gini index, a measure of zero is absolute equality and a measure of one is the maximum inequality. Changes in the Gini index over time, or as a result of a government policy, for example, the tax structure, indicate the direction and magnitude of changes in the distribution of incomes. The Census Bureau calculates and publishes detailed Gini indices using a variety of definitions of income. For further discussion of the Gini index, see infra notes 197–200 and accompanying text.
22 See generally Daniel H. Weinberg, U.S. Census Bureau, Pub. No. P60-191, Current Population Reports: A Brief Look at Postwar U.S. Income Inequality (1996), available at http://www.census.gov/prod/1/pop/p60-191.pdf (last modified Feb. 26, 1997).
23 The CBO analysis is based on an adjusted pre-tax comprehensive household income measure that includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals on the basis of assumptions about incidence), employee contributions to 401(k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps, among others). The CBO also adjusted household comprehensive income for differences in household size. Cong. Budget Office, Effective Federal Tax Rates, 1997 to 2000, at 3–4 (2003), available at http://www.cbo.gov/
ftpdocs/45xx/doc4514/08-29-Report.pdf.
24 See Cong. Budget Office, supra note 6, at 67–68 app. F; Petska et al., supra note 9, at 342.
25 See U.S. Census Bureau, Household Income Ratios by Selected Percentile: 1967 to 2001, in Historical Income Tables tbl.IE-5 (2004), http://www.census.gov/hhes/income/histinc/
ie5.html (last revised May 13, 2004).
26 Some studies acknowledge that income disparities grew sharply in the 1980s, but assert that growth of income disparities then stabilized in the 1990s. See, e.g., Weinberg et al., supra note 5, at 18. These conclusions are based on Census Bureau data that appear to show that income disparities have remained relatively constant since 1993. For a number of reasons, those Census Bureau data fail to capture much of the income growth that has occurred at the top of the income distribution in the 1990s. See Jones & Weinberg, supra note 21, at 7–9 (Census Bureau studies and the Gini index show that most of the significant increases in income inequality developed between 1981 and 1992 and that increasing income inequality abated during the 1990s). The data from the CBO and IRS Statistics of Income Division clearly refute this conclusion.
27 See generally Robert Greenstein & Isaac Shapiro, Ctr. on Budget & Policy Priorities, The New Definitive CBO Data on Income and Tax Trends (Sept. 23, 2003), available at http://www.cbpp.org/9-23-03tax.pdf.
28 Cong. Budget Office, supra note 23, at 30–31 app. B, tbl.B1-C.
29 Id. (calculations made by author based on these figures).
30 The Census Bureau data are slightly different, but do not paint a contrary view.
Mean Household Before-Tax Income (2001 Dollars)
Group 1979 2000 2001
1st Quintile 9295 10,440 10,136
2d Quintile 22,642 26,069 25,468
3d Quintile 37,269 43,412 42,629
4th Quintile 54,662 67,485 66,839
5th Quintile 97,133 146,240 145,970
Top 5% 145,048 259,445 260,464

U.S. Census Bureau, Mean Income Received by Each Fifth and Top 5 Percent of Households (All Races): 1967 to 2001, in Historical Income Tables tbl.H-3 (2004), http://www.census.gov/
hhes/income/histinc/h03.html (last revised July 8, 2004). Census Bureau data include only money income (including public assistance and food stamps, but excluding capital gains) before taxes; they do not reflect in kind receipts or fringe benefits. Weinberg et al., supra note 5, at 18. These data, which are based on surveys, under-report capital income, such as interest and dividends, although wage income is well reported. Id. at 19.
For another analysis of the change in average household net incomes, see Chris Hartman, Inequality.org, Facts and Figures, Part 2: Income Patterns, Change in Family Income, 1947–79 and 1979–2001 fig.2.1, http://inequality.org/facts3fr.html (last updated Oct. 8, 2002) (citing U.S. Census Bureau, Mean Income Received by Each Fifth and Top 5 Percent of Families (All Races): 1966 to 2001, in Historical Income Tables tbl.F-3, http://www.census.gov/hhes/income/histinc/f03.html). (The constant dollar mean increase is in constant 2001 dollars.)
Bottom 20% Second 20% Middle 20% Fourth 20% Top 20% Top 5%
1947–1979 +116% +100% +111% +114% +99% +86%
1979–2001 +3% +11% +17% +26% +53% +81%

31 Three years earlier, the CBO had concluded that the average income for households in the lowest fifth had dropped slightly from 1979 to 1997. Cong. Budget Office, supra note 6, at 7. The baseline data for the CBO study of 1997 through 2000, however, present a significantly different picture, showing an increase in average real income for that cohort from $13,500 in 1979 to $14,200 in 1997 (in 2000 dollars). Cong. Budget Office, supra note 23, at 30–31 tbl.B1-C. For further analysis of these data, see Isaac Shapiro et al., Ctr. of Budget & Policy Priorities, Pathbreaking CBO Study Shows Dramatic Increases in Income Disparities in 1980s and 1990s: An Analysis of the CBO Data (May 31, 2001), available at http://www.cbpp.org/5-31-01tax.pdf.
32 Calculations made by author based on information derived from Cong. Budget Office, supra note 23, at 30–31 app. B tbl.B1-C.
33 Petska et al., supra note 9, at 353 tbl.2 (2003).
34 Another way to look at these data is to calculate the threshold for each income cohort as a multiple of the income threshold for the prior cohort.
Income Thresholds as a Multiple of the Income Threshold for the Prior Income Cohort
Group 1979 1993 2000
Top 80% — — —
Top 60% 2.08 2.07 2.06
Top 40% 1.68 1.71 1.71
Top 20 % 1.57 1.71 1.76
Top 10% 1.32 1.41 1.48
Top 5% 1.26 1.34 1.43
Top 1% 1.94 2.24 2.64
Top 0.5% 1.37 1.51 1.57
Top .25% 1.38 1.49 1.63
Top 0.1% 1.56 1.69 1.88

These data even more clearly reveal that although income inequality within the middle quintiles has remained relatively constant, inequality among the upper cohorts within the top 1% is increasing.
35 Petska et al., supra note 9, at 352 tbl.1.
36 Id.
37 Similar conclusions were found in James Alm & Sally Wallace, Are the Rich Different?, in Does Atlas Shrug?: The Economic Consequences of Taxing the Rich 165, 178 tbl.6.5 (Joel B. Slemrod ed., 2000). James Alm and Sally Wallace estimated that in 1989 the top 1% had 14.39% of all income, but individuals in the top 0.5% had 10.96% of the income. Thus, the top 0.5% received over 75% of the income of the top 1%. That pattern was repeated in 1994, when individuals in the top 1% had 13.73% of all income, but those in the top half of 1% received 10.47% of all income.
38 See generally Joel Slemrod, The Fortunate 400, 100 Tax Notes 935 (2003); Martin A. Sullivan, The Rich Get Soaked While the Super Rich Slide, 101 Tax Notes 581 (2003).
39 Michael Parisi & Michael Strudler, Internal Revenue Serv., The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992–2000, 23 Statistics of Income Bull. 10, 11–12 (Spring 2003), available at http://www.irs.gov/pub/irs-soi/00in400h.pdf.
40 Id. at 11. This is a dramatic increase. In earlier years the percentage of the group’s AGI represented by net capital gains was lower, sometimes much lower: in 1992, it was 36.08%; in 1993, it was 48.01%; in 1994, it was 52.26%; in 1995, it was 44.10%; in 1996, it was 63.40%; and in 1997, it was 72.91%. Id.
41 For thresholds for the top 0.1% in current dollars, see Petska et al., supra note 9, at 352 tbl.1.
42 Thomas Piketty & Emmanuel Saez, Income Inequality in the United States, 1913–1998, 118 Q.J. Econ. 1, 15 tbl.III (2003). Table III has data for selected years from 1916 through 1998. For most selected years, the percentage of income of the top 0.01% realized as capital gains exceeded the percentage of income of the 99.9th to 99.99th percentile realized as capital gains. 1998 was aberrational.
43 See infra notes 282–290 and accompanying text.
44 See generally Robert H. Frank & Phillip J. Cook, The Winner-Take-All Society (1995).
45 Piketty & Saez, supra note 42, at 17.
46 Martin J. McMahon, Jr. & Alice G. Abreu, Winner Take All Markets: Easing the Case for Progressive Taxation, 4 Fla. Tax Rev. 1, 26 & n.86 (1998).
47 Given the prominence of Black athletes and entertainers, one might intuit that if the earnings of entertainers and athletes contributed significantly to their inclusion in the top 1% of income earners that fact would be reflected in the racial demographics of the top 1%. Data indicate that this is not true. In 1983, non-Hispanic Blacks constituted 1.2% of the top 1% of income earners, but by 1992 non-Hispanic Blacks constituted only 0.1% of the top 1% of income earners. Edward N. Wolff, Who Are the Rich? A Demographic Profile of High-Income and High-Wealth Americans, in Does Atlas Shrug?: The Economic Consequences of Taxing the Rich, supra note 37, at 74, 96 tbl.3.9.
48 See id. at 97 tbl.3.9, 101.
49 Hartman, supra note 30; see Kevin Phillips, Wealth and Democracy: A Political History of the American Rich 147, 153–56 (2002) (describing increasing CEO pay relative to average workers’ wages).
50 Louis Lavelle et al., Executive Pay, BusinessWeek Online (Apr. 15, 2002), at http://www.businessweek.com/magazine/content/02_15/b3778012.htm.
51 Id.
52 Id.
53 Id.
54 The Top-Paid Chief Executives . . . and 10 Who Aren’t CEOs, Business Week Online, (Apr. 15, 2002), at http://www.businessweek.com//magazine/content/02_15/art02_15/
a15top.gif; see Executive Compensation Scoreboard, Business Week Online (Apr. 15, 2002), available at http://www.businessweek.com/pdfs/2002/0215-execpay.pdf.
55 Cong. Budget Office, supra note 23, at 26–27, 32–33, app. B, tbls.B1-B & B1-C.
56 Id. (calculations made by author based on these figures).
57 Id. (calculations made by author based on these figures).
58 Id. at 33, app. B, tbl.B1-C.
59 The top 1% consisted of 1.1 million households, while the bottom 40% included 44.2 million households. Id. at 26–27, 32–33, app. B, tbls.B1-B & B1-C.
60 Data from the Staff of the Joint Committee on Taxation reveal that this distribution was not much changed in 2001. According to that data, the top 1% of taxpayers claimed 17.2% of all income, the top 5% claimed 31.3% of all income, and the top 10% claimed 42% of all income. See generally Staff of Joint Comm. on Tax’n, 107th Cong., Distribution of Certain Federal Tax Liabilities by Income Class for Calendar Year 2001 (JCX-2-01) (Comm. Print 2001), available at http://www.house.gov/jct/x-2-01.pdf.
61 Calculations made by author based on information derived from Cong. Budget Office, supra note 23, at 31, app. B, tbl.B1-C.
62 Petska et al., supra note 9, at 353 tbl.2.
63 Id.
Percentile Shares of Before-Tax Income
Income Class 1979 1993 2000
Bottom 20% 2.89 2.31 2.02
Second Quintile 8.37 6.99 6.03
Third Quintile 14.82 12.75 10.87
Fourth Quintile 23.91 21.52 18.69
81st–90th % 16.94 16.5 14.85
91st–95th % 10.89 11.22 10.72
95th–99th % 12.6 14.31 15.25
99th–99.9th % 6.3 8.73 11.09
Top 0.01% 3.28 5.66 10.49

64 See generally Thomas D. Stanley & William D. Danko, The Millionaire Next Door (1996).
65 See generally Wilfred T. Masumura, U.S. Census Bureau, Pub. No. P70-56, Current Population Reports: Dynamics of Economic Well-Being: Income, 1992 to 1993, Moving up and down the Income Ladder (1996), available at http://www.census.gov/prod/2/
pop/p70/p70-56.pdf (last modified Feb. 26, 1997).
66 See Joseph Bankman & Barbara H. Fried, Winners and Losers in the Shift to a Consumption Tax, 86 Geo. L.J. 539, 559–61 (1998). In the early 1990s, 75% of the people whose incomes placed them among the poorest fifth of the population in one year remained in the poorest fifth of the population the following year. Peter Gottschalk & Sheldon Danziger, Family Income Mobility—How Much Is There, and Has It Changed?, in The Inequality Paradox: Growth of Income Disparity 92, 99 (James A. Auerbach & Richard S. Belous eds., 1998).
67 Isabel V. Sawhill & Mark Condon, Is U.S. Income Inequality Really Growing?, Sorting out the Fairness Question, Policy Bites (Urban Inst., Wash., D.C.), June 1992, at 1–4.
68 Gottschalk & Danziger, supra note 66, at 101.
69 Id.
70 Don Fullerton & Diane Lim Rogers, Who Bears the Lifetime Tax Burden? 111 (1993).
71 Id. at 109.
72 The Department of the Treasury studied a sample of people filing tax returns every year from 1979 through 1988 and found that only 14% of taxpayers in the lowest quintile in 1979 were still in that quintile in 1988, while 65% of taxpayers in the highest quintile were in it both years. Office of Tax Analysis, U.S. Dep’t of the Treasury, Household Income Mobility During the 1980s: A Statistical Assessment Based on Tax Return Data 5–7 (1992) (illustrating that limiting the analysis to people filing tax returns in all ten years excluded people with the lowest incomes because they are not required to file tax returns). See generally W. Michael Cox & Richard Alm, Fed. Res. Bank of Dallas, By Our Own Bootstraps: Economic Opportunity and the Dynamics of Income Distribution (1995).
73 See Bankman & Fried, supra note 66, at 559–60.
74 Gottschalk & Danziger, supra note 66, at 108.
75 Martin Neil Baily et al., Growth with Equity 72 (1993).
76 See infra notes 522–562 and accompanying text.
77 See Cong. Budget Office, supra note 23, at 32–33 tbl.B-1C. More complete, but still selective, data are shown in the following table.
After-Tax Income, Selected Years, 1979–2000
Income
Class		 1979 1982 1985 1988 1992 1995 1998 2000
Lowest Quintile 12,600 11,500 11,400 11,600 12,100 13,200 14,000 13,700
Second Quintile 25,600 23,900 24,200 24,500 25,200 26,900 28,700 29,000
Middle Quintile 36,400 34,400 35,800 37,100 37,200 38,800 41,200 41,900
Fourth Quintile 47,700 46,400 48,700 51,000 51,200 53,200 57,300 59,200
Fifth Quintile 84,000 84,300 96,500 108,000 105,100 109,000 129,100 141,400
All 40,700 40,000 43,100 46,100 46,200 48,100 54,100 57,000
Top 10% 106,300 109,000 129,000 147,100 141,500 145,600 181,100 201,400
Top 5% 140,100 145,800 177,200 208,000 197,300 203,200 265,400 299,400
Top 1% 286,300 321,800 421,500 537,900 484,900 487,100 721,100 862,700

78 Calculations made by author.
79 See supra notes 23–75 and accompanying text.
80 Calculations made by author.
81 There is no inconsistency between reduced statutory tax rates for all income classes and an increase in overall effective tax rates, as indeed did occur between 1979 and 2000. The phenomenon is explained by the increased percentage of income realized by taxpayers subject to the higher marginal tax rates. As a larger percentage of income is realized by high-income taxpayers, more income is taxed at higher rates, even if those higher rates are somewhat lower than in earlier years.
82 See Cong. Budget Office, An Economic Analysis of the Taxpayer Relief Act of 1997, at 60–62 (2000), available at http://www.cbo.gov/ftpdocs/19xx/doc1959/tpra97.pdf (last modified May 19, 2000).
83 See id. at 24–27, 57–65 (detailing education credits and child credit).
84 See supra notes 76–83 and accompanying text.
85 Cong. Budget Office, supra note 23, at 32–33 tbl.B-3C. The breakdown of the fifth quintile is from the author’s calculations. The CBO data for the fifth quintile are presented as follows:
Economic Income Group 1979 Pre-Tax Income 1979 After-Tax Income 2000 Pre-Tax
Income		 2000 After-Tax Income
Highest 45.5 42.4 54.8 51.3
Top 10% 30.5 27.6 40.6 37.1
Top 5% 20.7 18.1 30.7 27.5
Top 1% 9.3 7.5 17.8 15.5

86 This loss of income share by the 91st through 95th percentiles was a function of having been left behind by the top 5% in the 1990s. During the 1980s, the 91st through 95th percentiles joined the rest of the top 10% in gaining income share at the expense of the bottom 90%.
87 See generally Edward N. Wolff, Recent Trends in Wealth Ownership, 1983–1998 (Levy Econ. Inst. of Bard Coll., Working Paper No. 300, 2000), available at http://www.levy.
org/pubs/wp/300.pdf.
88 See generally Arthur B. Kennickell, An Examination of Changes in the Distribution of Wealth from 1989–1998: Evidence from the Survey of Consumer Finances (Levy Econ. Inst. of Bard Coll., Working Paper No. 307, 2000), available at http://www.levy.org/modules/pubslib/files/wp307.pdf.
89 See Wolff, supra note 47, at 78 tbl.3.2; see also Deborah A. Geier, Incremental Versus Fundamental Tax Reform and the Top One Percent, 56 SMU L. Rev. 99, 114–19 (2003).
90 See Ana M. Aizcorbe et al., Div. of Research, Fed. Reserve Bd., Recent Changes in U.S. Family Finances: Results from the 1998 and 2001 Survey of Consumer Finances, 89 Fed. Res. Bull. 1, 8 (2003), available at http://www.federalreserve.gov/pubs/bulletin/2003/0103lead.pdf. One study, based on the data from the Federal Reserve Board’s Triennial Survey of Consumer Finances, concluded that almost the entire increase in concentration of wealth from 1989 to 1998 was attributable to increased wealth of the Forbes 400, and that there was little change in the concentration of wealth among the remainder of the population. Kennickell, supra note 88, at 7–9. This study acknowledges that there are defects in the Survey of Consumer Finances and that other studies that have made compensating adjustments conclude that there has been increased concentration of wealth around the very top of the distribution below the Forbes 400. Id.
91 Wolff, supra note 47, at 77 tbl.3.2.
92 Calculations of distributions of wealth generally do not include the present value of the right to Social Security benefits or employer-sponsored, defined-benefit plans. The retirement income provided by these plans generally is based on workers’ salaries and years of work. Economists generally conclude that the income streams “cannot be translated directly into a current value because valuation depends critically on assumptions about future events and conditions—work decisions, earnings, inflation rates, discount rates, mortality, and so on—and no widely agreed upon standards exist for making these assumptions.” Aizcorbe, supra note 90, at 14; see William G. Gale, The Effects of Pensions on Household Wealth: A Reevaluation of Theory and Evidence, 106 J. Pol. Econ. 706, 720 (1998) (stating that “pension wealth data are of generally poor quality; all methods of calculating pension wealth in defined benefit plans are likely to create measurement error”). Nevertheless, in analyzing retirement income security, economists do attempt to quantify Social Security and pension wealth. See Dorothy A. Brown et al., Social Security Reform: Risks, Returns, and Race, 9 Cornell J.L. & Pub. Pol’y 633, 654–55 (2000). See generally Alan L. Gustman et al., Pension and Social Security Wealth in the Health and Retirement Study (Nat’l Bur. of Econ. Research, Working Paper No. 5912, 1997). For one possible calculation of net worth including the annuity value of Social Security benefits and defined-benefit pensions, see generally Arthur B. Kennickell & Annika E. Sund�n, Pensions, Social Security, and Distributions of Wealth (Bd. of Governors, Fed. Reserve Sys., Fin. & Econ. Discussion Series No. 1997-55, 1997), available at http://www.fed
eralreserve.gov/pubs/feds/1997/199755/199755pap.pdf. According to this study, including defined-benefit pension and Social Security “wealth” reduces the share of wealth held by the top 0.5% from 24% of all net worth to 12%; and the net worth share of the bottom 90% rises from 31% to 54%. This is because the bottom 90% hold the overwhelming majority of pension and Social Security wealth, and Social Security and pensions constitute approximately 82% of total net worth. Nevertheless, one must not lose sight of the fact that under either wealth definition, about 45% of all business assets and about 30% of publicly traded corporate stocks are held by the top 0.5%. The non-pension assets of the bottom group are also determined mostly by their large share of principal residences and the associated debt. Id. at 11. The effects of pension wealth on other types of savings is not consistent. Defined-benefit plan coverage and IRAs have a negative correlation with non-pension net worth, but defined-contribution plans, such as � 401(k) plans and Social Security, both appear to have an insignificant result on non-pension savings. Id. at 17. When pension wealth is factored into the calculation of wealth shares, a significant distortion is introduced because pension wealth generally is calculated on a pre-tax basis, whereas other wealth is calculated on an after-tax basis. Gale, supra at 720. Finally, it is important to remember that unlike wealth in the form of cash, stock, bonds, real estate, and small businesses, Social Security and defined-benefit pension wealth are illiquid and do not provide current spending or economic power.
93 Wolff, supra note 87, at tbl.2. Net worth is defined as the current value of all marketable assets minus total liabilities. Total assets include only the following: (1) the gross value of owner-occupied housing, (2) other real estate, (3) cash and demand deposits, (4) time and savings deposits, certificates of deposit, and money market accounts, (5) government bonds, corporate bonds, foreign bonds, and other financial securities, (6) the cash surrender value of life insurance plans, (7) the cash surrender value of pension plans, including IRAs, Keogh, and � 401(k) plans, (8) corporate stock and mutual funds, (9) net equity in unincorporated businesses, and (10) equity in trust funds. Total liabilities are the sum of the following: (1) mortgage debt, (2) consumer debt, including auto loans, and (3) other debt. The value of nonmarketable pension plan benefits and Social Security benefits is not included. Id. at 2; see Barry W. Johnson & Lisa M. Schreiber, Internal Revenue Serv., Personal Wealth, 1998, 22 Statistics of Income Bull. 87, 88 (Winter 2002–2003) (indicating that the top 3.4% of wealth holders, measured by gross assets, held 32.6% of U.S. assets and 35.2% of net worth), available at http://www.irs.gov/pub/irssoi/98pwart.pdf.
94 See generally Kennickell, supra note 88 (discussing data from Federal Reserve Board Triennial Survey of Consumer Finances).
Proportion of Net Worth, 1998
Cohort Percent of Net Worth
99.5%–100% 25.8
99%–99.5% 8.2
90%–99% 34.7
0%–89.9% 32.7
The data from the Federal Reserve Board Triennial Survey of Consumer Finances explicitly omit data with respect to the Fortunate 400. Id. For 1998, that group was estimated to hold net wealth equal to held 2.6% of the total wealth. Id. If the Fortunate 400 were included in the top 0.5%, these data would more nearly resemble the data in the text.
95 See Arthur B. Kennickell, Survey of Consumer Fins., Fed. Reserve Sys., A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989–2001, at 9 (Levy Econ. Inst. of Bard Coll., Working Paper No. 393, 2003), available at http://www.levy.org/
modules/pubslib/files/wp393.pdf.
Year Percentile Group Percentile Group Percentile Group Percentile Group Percentile Group
0–49.9 50–89.9 90–94.9 95–98.9 99–100
1989 2.7 29.9 13.0 24.1 30.3
1992 3.3 29.7 12.6 24.4 30.2
1995 3.6 28.6 11.9 21.3 34.6
1998 3.0 28.4 11.4 23.3 33.9
2001 2.8 27.4 12.1 25.0 32.7

96 See House Comm. on Ways & Means, 103d Cong., Overview of Entitlement Programs 1553 tbl.2 (Comm. Print 1993).
97 From 1983 to 1989, the richest 1% of American families increased its share of the nation’s total private wealth from 31.3% to 36.2%. The group’s net worth was over $6 trillion; it held over $3 trillion of real estate, stocks, bonds, and other financial assets. Arthur B. Kennickell & R. Louise Woodburn, Estimation of Household Net Worth Using Model-Based and Design-Based Weights: Evidence from the 1989 Survey of Consumer Finances (1992), available at http://www.federalreserve.gov/pubs/oss/oss2/papers/concen
tration.1989.final.pdf; see Edward N. Luttwak, The Endangered American Dream: How to Stop the United States from Becoming a Third World Country and How to Win the Geo-Economic Struggle for Industrial Supremacy 163–64, 175 n.35 (1993).
98 Johnson & Schrieber, supra note 93, at 98–99 (stating that the top 1% held 23.5% of wealth, measured by gross assets, and the top 0.5% held 18.3%).
99 Kennickell, supra note 88, at 10 tbl.6d.
100 Id. at 3 tbl.1.
101 Kennickell, supra note 95, at 3.
102 Wojciech Kopczuk & Emmanuel Saez, Top Wealth Shares in the United States, 1916–2000: Evidence from Estate Tax Returns 27 (Nat’l Bureau of Econ. Research, Working Paper No. 10399, 2003), available at http://emlab.berkeley.edu/users/
saez/estatelong.pdf.
103 See generally Kennickell, supra note 88.
104 The Richest People in America: The Forbes 400, Forbes.com, at http://www.forbes.com/
richlist2003/rich400land.html (Sept. 18, 2003).
105 See James R. Repetti, Democracy, Taxes and Wealth, 76 N.Y.U. L. Rev. 825, 849 (2001).
106 Dinesh D’Souza, The Billionaire Next Door, Forbes, Oct. 11, 1999, at 50.
107 Repetti, supra note 105, at 849 n.142.
108 Kennickell, supra note 95, at 48.
109 See John F. Witte, The Politics and Development of the Federal Income Tax 67–154 (1985) (describing the historical development of the income tax); Geier, supra note 89, at 100–05. See generally Robert E. Hall & Alvin Rabushka, The Flat Tax (2d ed. 1995); Joseph Bankman & Thomas Griffith, Social Welfare and the Rate Structure: A New Look at Progressive Taxation, 75 Cal. L. Rev. 1905 (1987); Walter J. Blum & Harry Kalven Jr., The Uneasy Case for Progressive Taxation, 19 U. Chi. L. Rev. 417 (1952); Barbara Fried, The Puzzling Case for Proportionate Taxation, 2 Chap. L. Rev. 157 (1999); Marjorie E. Kornhauser, Equality, Liberty and a Fair Income Tax, 23 Fordham Urb. L.J. 607 (1996) [hereinafter Kornhauser, Fair Income Tax]; Marjorie E. Kornhauser, The Rhetoric of the Anti-Progressive Income Tax Movement: A Typical Male Reaction, 86 Mich. L. Rev. 465 (1987) [hereinafter Kornhauser, The Rhetoric]; Marc Linder, Eisenhower-Era Marxist-Confiscatory Taxation: Requiem for the Rhetoric of Rate Reduction for the Rich, 70 Tul. L. Rev. 905 (1996); McMahon & Abreu, supra note 46; Lawrence Zelenak & Kemper Moreland, Can the Graduated Income Tax Survive Optimal Tax Analysis? 53 Tax L. Rev. 51 (1999).
110 In 1964 the top rate was reduced to 70% as part of a general tax cut, and in 1969 the top rate on “earned income” was reduced to 50%. Other income, however, was subject to tax up to 70%, except capital gains, the top rate on which varied from 25% to 35% through the 1960s and 1970s.
111 In 1961, for example, the bottom quintile of tax filers faced a zero rate due to the personal exemptions and standard deduction. The first three rates—20%, 22%, and 24%—applied to the next 70% of taxpayers, and the steeply graduated rates, which at that time went to 90%, applied to 10% or less of filers at the top of the income distribution. See C. Eugene Steuerle, The Tax Decade 23 (1991). The marginal rates above 38% applied to less than 1% of all return filers, about 1.1% of taxable returns. Calculations made by author based on information derived from Internal Revenue Serv., Statistics of Income 1962 Individual Income Tax Returns 110–13 & tbl.20 (1965). The top 0.5% of filers, by AGI class, were subject to marginal tax rates of 50% or more; slightly less than 0.4% of filers were in marginal tax rates brackets higher than 50%. Calculations made by author based on information derived from id.
112 See generally Richard Kasten et al., Trends in Federal Tax Progressivity 1980–93, in Tax Progressivity and Income Inequality, at 9 (Joel B. Slemrod ed., 1994).
113 See Witte, supra note 109, at 222. This slashing of the top rates was akin to the Andrew Mellon-led tax cuts of the 1920s. Id. at 234. In contrast, the reduction of the top rate on earned income from 70% to 50% in 1969 was coupled with other changes, restricting deductions and creating the alternative minimum tax, which resulted in no net tax relief for the income class benefiting from the nominal statutory rate reduction. Id. at 228–35. Notwithstanding the resemblance of the 1981 Act to the Mellon-led Republican tax cuts of the 1920s, however, the tax cuts in the 1981 Act, in toto, reflected the end result of a bidding war between the Republicans and the Democrats to see who could provide the biggest tax cut. The result was truly bipartisan. See Harry L. Gutman, Reforming Federal Wealth Transfer Taxes After ERTA, 69 Va. L. Rev. 1183, 1198–206 (1983).
114 See Gregg A. Esenwein & Jane G. Gravelle, Cong. Research Serv., Library of Cong., An Analysis of the Tax Treatments of Capital Losses 7–8 (2002), available at http://www.law.umaryland.edu/marshall/ElectronicResources/crsreports/crsdocuments/RL31562_10092002.pdf; Leonard E. Burman & Deborah I. Kodes, Composition of Income Reported on Tax Returns, 101 Tax Notes 783, 783 (2003); Leonard E. Burman & Peter D. Ricoy, Capital Gains and the People Who Realize Them, 50 Nat’l Tax J. 427, 432 (1997); Jane G. Gravelle, Effects of Dividend Relief on Economic Growth, the Stock Market, and Corporate Tax Preferences, 56 Nat’l Tax J. 653, 654 (2003).
115 See Esenwein & Gravelle, supra note 114, at 7–8; Burman & Kodes, supra note 114, at 783; Burman & Ricoy, supra note 114, at 432.
116 Jane G. Gravelle, Cong. Research Serv., Library of Cong., Across-the-Board Tax Cuts: Economic Issues 6–8 (2001), available at http://www.law.umaryland.edu/
marshall/ElectronicResources/crsreports/crsdocuments/RL30779_09242001.pdf.
117 There was, however, a disguised 33% rate bracket, on what might loosely be described as the upper middle class. See Boris I. Bittker & Martin J. McMahon, Federal Income Taxation of Individuals � 40.2 (1988); Andrew B. Lyon, Individual Marginal Tax Rates Under the U.S. Tax and Transfer System, in Distributional Analysis of Tax Policy 214, 218–22 (David F. Bradford ed., 1995).
118 See Cong. Budget Office, supra note 23, at 22–23, app. B, tbl.B1-A (comparing listed effective rates for years before 1987, when most of the changes in the 1986 Act became fully effective, and 1987 through 1990, before the next subsequent act significantly affecting progressivity).
119 See Steuerle, supra note 111, at 122–25; Petska et al., supra note 9, at 345–47 & tbl.5.
120 Kasten et al., supra note 112, at 10.
121 See Petska et al., supra note 9, at 346 tbl.E. It was not possible to expand the base sufficiently to recoup the one-third cut in tax rates for high-income taxpayers, a large percentage of the income of which came from interest, dividends, and capital gains. Full taxation of capital gains alone would not have sufficed. Repeal of the deduction for state and local income taxes might have helped compensate for the reduced rates, but such repeal was impossible for political reasons. See Steuerle, supra note 111, at 112–14. Elimination of tax shelters through the passive activity loss restrictions in I.R.C. � 469 resulted in some base broadening. Id.; see Timothy J. Conlan et al., Taxing Choices 26–30 (1990); Sheldon D. Pollack, The Failure of U.S. Tax Policy 98–106 (1996).
122 House Comm. on Ways & Means, supra note 96, at 1516 app. K, tbl.26. The negative income tax rates for the lowest quintile result from the refundability of the � 32 earned income tax credit.
123 As a result, the share of total federal taxes paid by the top 1% increased from 14.9% in 1990 to 15.8% in 1994, and the share of taxes paid by the remainder of the top 5% increased from 14.9% to 15.2%. The share of all other groups decreased. See id. at 1515 tbl.25.
124 See Therese M. Cruciano & Michael Strudler, Internal Revenue Serv., Individual Income Tax Rates and Tax Shares, 1993, 16 Statistics of Income Bull. 7, 10 & fig.C (Summer 1996).
125 See Petska, supra note 9, at 345–47 tbl.E.
126 Payroll taxes effectively can be refunded though the refundable earned income credit in I.R.C. � 32. See Boris I. Bittker, Martin J. McMahon, Jr. & Lawrence A. Zelenak, Federal Income Taxation of Individuals � 27.02 (3d ed. 2002). The refundable earned income credit can result in negative income tax rates, but the combined income tax and payroll tax rate for low-income workers can remain positive.
127 See Michael J. Graetz, The Troubled Marriage of Retirement Security and Tax Policies, 135 U. Pa. L. Rev. 851, 864–65 (1987).
128 I.R.C. � 164(f) (West Supp. 2004). Generally speaking, the purpose of this deduction is to equalize the AGI of an employee and a self-employed individual, who otherwise have realized the same net earnings before taxes.
129 Deborah A. Geier, Integrating the Tax Burdens of the Federal Income and Payroll Taxes on Labor Income, 22 Va. Tax Rev. 1, 24 (2002).
130 See Joseph Pechman, Federal Tax Policy 215 (5th ed. 1987).
131 See Patricia E. Dilley, Taking Public Rights Private: The Rhetoric and Reality of Social Security Privatization, 41 B.C. L. Rev. 975, 1031 (2000).
132 See House Comm. on Ways & Means, 101st Cong., Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means 67 (Comm. Print 1989).
133 See generally Soc. Sec. Admin., Report of the National Commission on Social Security Reform, Unempl. Ins. Rep. with Soc. Security (CCH) No. 1127 (spec. ed., Jan. 27, 1983), available at http://www.ssa.gov/history/reports/gspan.html (last visited Nov. 15, 2004). The Commission is informally known as the Greenspan Commission after its Chairperson, Alan Greenspan.
134 The original design of the Social Security system not only did not contemplate that payroll taxes would be set at levels that exceeded current benefits, but contemplated that benefits would not be funded entirely out of payroll taxes. See Dilley, supra note 131, at 1006–07 (citing J. Douglas Brown, Essays on Social Security 44–56 (1977)).
135 Social Security Amendments of 1983, Pub. L. 98-21, 97 Stat. 65 (1983).
136 See Federal Insurance Contributions Act (FICA), I.R.C. � 3101 (historical and statutory notes).
137 Office of Mgmt. & Budget, Historical Tables, Budget of the United States Government, Fiscal Year 2005, at 31–32 tbl.2.2, available at http://www.whitehouse.gov/
omb/budget/fy2005/pdf/hist.pdf.
138 See, e.g., House Comm. on Ways & Means, supra note 132, at 66.
139 See generally Patricia E. Dilley, The Evolution of Entitlement: Retirement Income and the Problem of Integrating Private Pensions and Social Security, 30 Loy. L.A. L. Rev. 1063 (1997).
140 Bd. of Trs., Fed. Old-Age & Survivors Ins. & Disability Ins. Trust Funds, The 2003 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (2003), available at http://www.ssa.gov/OACT/TR/TR04/tr04.pdf (updated Mar. 17, 2003).
141 Id.
142 Id. at 26.
143 Cong. Budget Office, supra note 6, at xvii & fig.3.
144 For a thorough explanation of the expanded income concept used by the CBO, see id. at 20–25. The concept includes both taxable cash receipts and tax-exempt transfer payments, withdrawals from retirement funds, as well as certain in-kind receipts and the employer’s share of payroll taxes, but omits imputed income, unrealized appreciation, and gifts and inheritances.
145 For tax expenditure analysis, see generally Stanley S. Surrey & Paul R. McDaniel, Tax Expenditures (1985).
146 See generally Paul R. McDaniel, Identification of the “Tax” in “Effective Tax Rates,” 28 Nat’l Tax J. 273 (1985). Even though effective tax rate analysis employs an expanded income concept, because it focuses on actual tax liabilities rather than the normative tax liabilities found under tax expenditure analysis, the expanded income concept under effective tax rate analysis does not include in income the government subsidies to taxpayers determined under tax expenditure analysis. A more accurate picture might be presented if effective tax rates were determined by dividing the normative tax liabilities under tax expenditure analysis by expanded income that included not only direct government subsidies but also subsidies delivered through tax expenditures. No such comprehensive data are available.
147 See generally Cong. Budget Office, supra note 6.
148 See generally Cong. Budget Office, supra note 23. The statistics in the 2003 CBO study, which include the years covered in the 2001 study, differ from the comparable numbers in the 2001 study because of changes in the methodology used to create the data set for the analysis. The CBO advises readers who are comparing rates over time to use only data from the 2003 study and not to attempt to link that information to the data reported in the 2001 study. Among the most important differences are an increase in the share of total income going to the lowest quintile in virtually all years and an increase in the shares of total federal taxes being borne by households in the lower-income quintiles. Id. at 3.
149 See id. at 11.
150 Id. at 72; see Kasten et al., supra note 112, at 31 (reporting somewhat similar but not identical trends for a comparison of 1980, 1985, 1989, and 1993).
151 Kasten et al., supra note 112, at 2, 23 tbl.B1-A.
152 Id. at 2.
153 See Cong. Budget Office, supra note 6, at 20–24.
154 See id. at xxiii. If income grows more rapidly for higher-income households facing higher tax rates, the total effective rate rises, even if tax rates do not change for income subgroups.
155 The share of income received by the highest quintile climbed from 45.5% in 1979 to 54.8% in 2000, while the share for the lowest quintile fell from 5.8% to 4%. Households in the top 10% increased their share of income from 30.5% to 40.6%; households in the top 5% increased their share of income from 20.7% to 30.7%; and the top 1% saw their share of total income increase from 9.3% to nearly 17.8%. See Cong. Budget Office, supra note 23, at 32–33 tbl.B-1C.
156 See Piketty & Saez, supra note 42, at 15 tbl.III.
157 Id. at 17.
158 Petska et al., supra note 9, at 346–47 tbl.5.
159 Calculations made by author based on average tax rates for various years shown in id.
160 Office of Mgmt. & Budget, supra note 137, at 31–32 tbl.2.2.
161 In addition to the payroll taxes to finance Social Security and Medicare, the federal government imposes Social Security taxes to finance unemployment compensation. The CBO data also take these taxes into account. See Cong. Budget Office, supra note 23, at 60. These taxes are particularly regressive. See generally Patricia M. Anderson & Bruce D. Meyer, Unemployment Insurance Tax Burdens and Benefits: Funding Family Leave and Reforming the Payroll Tax (Nat’l Bureau of Econ. Research, Working Paper No. 10043, 2003).
162 See Office of Mgmt. & Budget, supra note 137, at 22 tbl.1.1.
163 The “Social Security trust fund” in reality is little more than an accounting mechanism to keep track of the amount of Social Security and Medicare payments that eventually will have to be funded out of taxes other than payroll taxes if payroll taxes are not increased.
164 The CBO data do not take into account transfer taxes, that is, estate, gift, and generation-skipping taxes, because limitations in the data used in the studies make it difficult to allocate taxes among households and in part because of uncertainty about whether decedents or heirs bear the burden of those taxes. See Cong. Budget Office, supra note 6, at xvii–xviii. Since 1987, these taxes continuously have constituted less than 0.5% of federal tax receipts. See Internal Revenue Serv., Selected Historical and Other Data, 22 Statistics of Income Bull. 244–45 tbl.18 (Spring 2003).
165 See, e.g., Andrew Mitrusi & James Poterba, The Distribution of Payroll and Income Tax Burdens, 1979–99, 53 Nat’l Tax J. 765, 770 (2000).
166 This attribution is based on the theory that the taxes affect the way capital is allocated between the corporate and noncorporate sectors of the economy, which influences the rate of return on all capital. See generally Jane G. Gravelle & Kent Smetters, Who Bears the Burden of the Corporate Tax (and Why)?: The Open Economy Case (Cong. Budget Office, Technical Paper No. 1998-1, 1998), available at ftp://ftp.cbo.gov/31xx/doc3123/
19981.pdf. Not all economists agree with this assumption. Some economists conclude that as little as 40% of the corporate tax burden is borne by domestic capital. Victor R. Fuchs et al., Why Do Economists Disagree About Policy? The Role of Beliefs About Parameters and Values 12–13 (Nat’l Bureau of Econ. Research, Working Paper No. 6151, 1997). The Joint Committee on Taxation does not allocate the corporate tax burden, on the grounds that the distribution is too uncertain. See Cong. Budget Office, supra note 6, at 56.
167 See Cong. Budget Office, supra note 23, at 9.
168 Economists widely agree that the burden of the payroll tax, including the employer’s share is borne by the workers. See Staff of Joint Comm. on Taxation, 103d Cong., Methodology and Issues in Measuring Changes in the Distribution of Tax Burdens 41 (JCS-7-93) (Comm. Print 1993), citing Joseph A. Pechman & Benjamin A. Okner, Who Bears the Tax Burden? 24–37 (1974); Joseph Pechman, supra note 130, at 223–25. See generally Richard A. Kasten & Eric J. Toder, CBO’s Methodology for Distributional Analysis, in Distributional Analysis of Tax Policy, supra note 117, at 120; James R. Nunns, OTA’s Methodology for Distributional Analysis, in Distributional Analysis of Tax Policy, supra note 117, at 111. The reason that employees bear the employer’s share of the FICA tax is that before-tax wages are depressed by the amount of the tax. Most wage earners, however, are blissfully unaware of this economic truth.
169 See Cong. Budget Office, supra note 23, at 2–3, 9. If only the employee’s share of payroll taxes is taken into account, a method which probably matches popular perception, if not economic reality, between 41% and 45% of households pay more in payroll taxes than in income taxes, depending on whether households that pay income taxes but not payroll taxes (because all of the income is from capital) are taken into account. Still, even by this measure, over 90% of households in the lowest-income quintile, over 70% of households in the second income quintile, and over between 40% and 48% of households in the middle income quintile pay more in payroll taxes than in income taxes. See Mitrusi & Poterba, supra note 165, at 765.
170 See Cong. Budget Office, supra note 23, at 22–23 tbl.B-1A.
171 See id.
172 See Pechman, supra note 130, at 227–28.
173 Cong. Budget Office, supra note 6, at 3–4 (“CBO considered the taxes to be borne by owners of capital under the assumption that the taxes affect the way capital is allocated between the corporate and noncorporate sectors of the economy, which influences the rate of return on all capital.”).
174 Economists believe that international flows of capital make it possible that the burden of corporate taxes can be shifted to workers, but this argument is “highly controversial.” See Joel Slemrod & Jon Bakija, Taxing Ourselves, A Citizens Guide to the Great Debate over Tax Reform 67–69 (1996).
175 Cong. Budget Office, supra note 6, at xxi–xxii.
176 Office of Mgmt. & Budget, supra note 137, at 31–32 tbl.2.2. According to a study published by the Center on Budget and Policy Priorities:
[C]orporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000.
As a result . . . , corporate revenues in 2003 represented only 1.2 percent of the Gross Domestic Product . . . , the lowest level since 1983, the year in which corporate receipts plummeted to levels last seen in the 1930s.
Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003. With the exception of 1983, this represents the lowest level on record (these data go back to 1934).
Joel Friedman, Ctr. on Budget & Policy Priorities, The Decline of Corporate Income Tax Revenues 1 (Oct. 24, 2003), available at http://www.cbpp.org/10-16-03tax.pdf.

Corporate Income Tax Receipts as a Percentage of Total Federal Receipts and GDP, by Decade
Average Percentage of Corporate Taxes as:
Share of Total Federal Receipts Share of GDP
1950–1959 27.5% 4.8%
1960–1969 21.3% 3.8%
1970–1979 15.0% 2.7%
1980–1989 9.3% 1.7%
1990–1999 10.5% 2.0%
2000–2009* 9.6% 1.7%
*Reflects OMB historical data through 2002, Treasury estimates of actual 2003, and CBO projections (August 2003) for the remaining years. The CBO projections assume that existing tax breaks will expire as scheduled and will not be extended. Source: Joel Friedman, Ctr. on Budget & Policy Priorities, The Decline of Corporate Income Tax Revenues 1 (Oct. 24, 2003), available at http://www.cbpp.org/10-16-03tax.pdf.

177 Id.
178 See Gil B. Manzon, Jr. & George A. Plesko, The Relation Between Financial and Tax Reporting Measures of Income, 55 Tax L. Rev. 175, 177 (2002); see also Friedman, supra note 176, at 9–11. See generally Staff of Joint Comm. on Taxation, 106th Cong., Testimony of the Staff of the Joint Committee on Taxation Concerning Interest and Penalties and Corporate Tax Shelters Before the Senate Committee on Finance (JCX-23-00) (Comm. Print 2000), available at http://www.house.gov/jct/x-23-00.pdf; Mihir A. Desai, The Corporate Profit Base, Tax Sheltering Activity, and the Changing Nature of Employee Compensation (Nat’l Bureau of Econ. Research, Working Paper No. 8866, 2002).
179 See George K. Yin, How Much Tax Do Large Public Corporations Pay?: Estimating the Effective Tax Rates of the S&P 500, 89 Va. L. Rev. 1793, 1853 (2003) [hereinafter Yin, Large Public Corporations]; George K. Yin, The Problem of Corporate Tax Shelters: Uncertain Dimensions, Unwise Approaches, 55 Tax L. Rev. 405, 405–07 (2002).
180 Yin, Large Public Corporations, supra note 179, at 1852–53 (covering the period 1995 through 2000).
181 Cong. Budget Office, supra note 23, at 23–24 tbl.B-1A.
182 Cong. Budget Office, supra note 6, at 12.
183 See Piketty & Saez, supra note 42, at 15 tbl.III.
184 Excise taxes are considered to be regressive because low-income individuals spend a higher percentage of their income on items subject to excise taxes than do high-income individuals. See Pechman, supra note 130, at 199–200.
185 Cong. Budget Office, supra note 23, at 24–25 tbl.B-1A.
186 See generally Gene Steuerle, Can Progressivity of Tax Changes Be Measured in Isolation, 101 Tax Notes 1187 (2003). In addition, due consideration must be given to the pattern of government expenditures. As Gene Steuerle has noted, “The only real test of progressivity is whether, on net, there is redistribution from richer to poorer as a result of all the changes on both the tax and spending sides of the budget.” Id. at 1187. Expenditures that disproportionately benefit lower-income classes, such as, transfer payments to the indigent, are more progressive than those benefits of which are spread more evenly, such as public education, which in turn are more progressive than those that disproportionately benefit higher-income classes, such as subsidies to businesses. Even Social Security and Medicare benefits are not distributed as progressively as many people think. Although within bounds, individuals who had higher wage income in their working years receive higher, though less than proportionately higher, Social Security (but not Medicare) benefits, the benefits programs do not in fact redistribute very much after the higher mortality rates of the poor are taken into account. Id. at 1188.
187 Cong. Budget Office, supra note 6, at 1–2.
188 See supra notes 23–32 and accompanying text.
189 See supra notes 76–83 and accompanying text.
190 Cong. Budget Office, supra note 23, at 22–23 tbl.B-1A.
191 Calculations made by author.
192 See supra notes 187–190 and accompanying text.
193 Petska et al., supra note 9, at 342 tbl.5.
194 Id. at 346–47 tbl.5 (percentage calculations made by author of percentage reduction in rates shown in Table 5); see supra notes 165–166 and accompanying text.
195 Petska et al., supra note 9, at 347.
196 Even if the 10.27% reduction in the overall effective tax rate for the top 1% was matched by the other quintiles, the effect would have been to reduce progressivity. Across-the-board equal percentage reductions in tax rates (for example, a 10% reduction in all rates—for instance, 30% to 27%, 20% to 18%, and 10% to 9%) reduces progressivity. As it was, only the first and third quintiles had rate reductions equal to or greater than that of the top 1%. See Gravelle, supra note 116, at 8–9.
197 The Gini index ranges from zero, indicating perfect equality (when everyone receives an equal share of income), to one, indicating perfect inequality (when all the income is received by only one recipient). Numerically, a Gini coefficient is the estimated area above a Lorenz curve but beneath the 45( diagonal, expressed as a percentage of the entire area below the 45( diagonal. A Lorenz curve is a cumulative aggregation of income from lowest to highest, expressed on a percentage basis. The 45( diagonal represents absolute equality of income. The curve of actual distribution is below and to the right of the 45( diagonal. If between two points in time inequality has increased, the curve for actual distribution shifts to the right, the area between the curve showing actual distribution and the 45( diagonal increases, and the Gini index goes up. Conversely, if between two points in time inequality has decreased, the curve for actual distribution shifts to the left, the area between the curve showing actual distribution and the 45( diagonal increases, and the Gini index goes down. The Census Bureau calculates and publishes detailed Gini indices using a variety of definitions of income. The CBO studies of Effective Federal Tax Rates did not include any Gini index analysis.
Reliance on changes in the Gini index alone can hide issues. Two Lorenz curves may intersect when there has been a change in distribution that reflects increasing downside inequality, for example, if the poor lose ground to the middle class, but the middle class gains ground on the upper class. See generally James Davies & Michael Hoy, Making Inequality Comparisons When Lorenz Curves Intersect, 85 Am. Econ. Rev. 980 (1995).
198 See Petska et al., supra note 9, at 346–47 tbl.5.
199 Id. at 349 fig.G. The Census Bureau before-tax Gini index, which omits capital gains and thus understates income inequality, also shows a similar increase in inequality over that period, although the numerical values of the index differ. See U.S. Census Bureau, Gini Ratios for Households, by Race and Hispanic Origin of Householder: 1967 to 2001, in Historical Income Tables tbl.H-4 (2004), http://www.census.gov/hhes/income/histinc/
h04.html (last revised Aug. 27, 2004); U.S. Census Bureau, Gini Ratios for Families, by Race and Hispanic Origin of Householder: 1947 to 2001, in Historical Income Tables tbl.F-4 (2004), http://www.census.gov/hhes/income/histinc/f04.html (last revised July 8, 2004).
200 If the 2001 tax cut sent as rebate in 2000 is treated as a reduction in taxes for 2000, the progressivity of the tax system increased somewhat from 1999 to 2000, but still did not even reach its 1996 level. Petska et al., supra note 9, at 349 fig.G.
201 See Mitrusi & Poterba, supra note 165, at 782 (computing percentages of families that paid less taxes—that is, income, payroll, and combined income and payroll taxes—in 1999 than they would have paid if the 1979 law had still been in effect).
202 Id. at 778–79. If the analysis considers families that had either income taxes and payroll taxes (but not necessarily both), 70.2% had lower personal income tax liabilities in 1999 than they would have had if the 1979 law had still been in effect, and only 37.5% saw a decline in combined income and payroll tax liabilities.
Among the many statutory changes that contribute to these effects in addition to the statutory rate changes, one of the most important changes for low-income taxpayers is the significant expansion of the earned income credit.
203 Incomes are adjusted gross income (“AGI”).
204 See David Campbell & Michael Parisi, Internal Revenue Serv., Individual Income Tax Returns, 1999, 21 Statistics of Income Bull. 9, 26 tbl.1 (Fall 2001), available at http://
www.irs.gov/pub/irs-soi/99indtr.pdf. Calculations made by author based on data therein.
205 The actual dollar-denominated range of each tax bracket is announced annually in a Revenue Procedure.
206 Medical expense deductions are not completely disallowed under the AMT, but are subject to a floor equal to 10% of AGI rather than the normal 7.5% floor.
207 Like the regular tax, AMT exemptions are phased out at higher-income levels. The phase-out range generally is between $155,000 and $330,000 for a married couple filing jointly and between $112,500 and $247,500 for single taxpayers.
208 See Robert P. Harvey & Jerry Tempalski, The Individual AMT: Why It Matters, 50 Nat’l Tax J. 453, 468 (1997).
209 See Daniel Shaviro, Tax Simplification and the Alternative Minimum Tax, 91 Tax Notes 1455, 1456 (2001).
210 See generally Robert Rebelein & Jerry Tempalski, Who Pays the Individual AMT? (Office of Tax Analysis, U.S. Treasury Dep’t, OTA Paper No. 87, 2000), available at http://
www.treas.gov/ota/ota87.pdf.
211 Staff of Joint Comm. on Taxation, 107th Cong., 1 Study of the Overall State of the Federal Tax System and Recommendations for Simplification, Pursuant to Section 8022(3)(B) of the Internal Revenue Code of 1986, at 10 (JCS-3-01) (Comm. Print 2001), available at http://www.house.gov/jct/s-3-01vol1.pdf.
212 See generally Nat’l Taxpayer Advocate Serv., Internal Revenue Serv., 2003 Annual Report to Congress (2003) (citing unpublished data provided by the Joint Committee on Taxation), available at http://www.irs.gov/pub/irs-utl/nta_2003_annual_update_
mcw_1-15-042.pdf.
213 The Staff of the Joint Committee on Taxation has recommended its repeal. Staff of Joint Comm. on Taxation, supra note 211, at 15–16.
214 President Bush’s tax proposals in the 2005 Budget provide only minimal AMT relief. See generally Leonard E. Burman et al., AMT Relief in the FY2005 Budget: A Bandaid for a Hemorrhage (Feb. 4, 2004), available at http://www.urban.org/UploadedPDF/1000601.pdf.
215 Joint Comm. on Taxation, 107th Cong., Estimated Budget Effects of the Conference Agreement for H.R. 1836: Fiscal Years 2001–2011, at 8 (JCX-51-01) (Comm. Print 2001), available at http://www.house.gov/jct/x-51-01.pdf.
216 For 2001, I.R.C. � 6428 provided a rate reduction credit in lieu of the 10% rate bracket.
217 See generally Adam Carasso, How the 2001 and 2003 Tax Cuts Affect Hypothetical Families in Tax Year 2003, available at http://www.taxpolicycenter.org/UploadedPDF/410909_Tax
Cuts.pdf (last visited Nov. 15, 2004).
218 Gravelle, supra note 116, at 8–9.
219 Id. at 2–3.
220 William G. Gale & Samara R. Potter, The Bush Tax Cut: One Year Later, Policy Brief No. 101 (Brookings Inst., Wash., D.C.), June 2002, at 4, available at http://www.brookings.
edu/comm/policybriefs/pb101.pdf.
221 An across-the-board percentage rate reduction would reduce all rates by the same percentage of the pre-reduction rate, not by the same number of percentage points.
222 Gravelle, supra note 116, at 6–8.
223 Gale & Potter, supra note 220, at 3.
224 See supra notes 218–219 and accompanying text.
225 See infra notes 229–231 and accompanying text.
226 See Gravelle, supra note 116, at 12–14.
227 I.R.C. � 26. For the child credit generally, see Bittker, McMahon & Zelenak, supra note 126, at � 27.03.
228 The phase-out rules create narrow marginal tax brackets as high as 5000%!
229 Because the partial refundability rules were enacted by the 2001 Act, and all of the amendments in the 2001 Act sunset on December 31, 2010, absent further congressional action, the nonrefundability rule will apply again starting in 2011.
230 I.R.C. � 32. For a discussion of the earned income credit generally, see Bittker, McMahon & Zelenak, supra note 126, at � 27.02.
231 There were minor adjustments made to the phase-out rules.
232 See Jerry Tempalski, The Impact of the 2001 Tax Bill on the Individual AMT, in Proceedings of the 94th Annual National Tax Association Conference on Taxation 340, 340--41 (2001).
233 David Cay Johnston, Perfectly Legal 110 (2003).
234 Estate and gift tax collections were only $11.5 billion in 1990, increasing to $29 billion in 2000, before falling off to $22 billion in 2003. Office of Mgmt. & Budget, supra note 137, at 43–44 tbl.2.5. This is barely 1% of federal revenues. Nevertheless, as the late Senator Everett Dirksen is reputed to have said, “A billion here, a billion there, and pretty soon you’re talking real money.” Whether Senator Dirksen ever actually uttered these words is an open question. Dirksen Cong. Ctr., “A Billion Here, a Billion There . . . ,” at http://www.dirksencenter.org/print_emd_billionhere.htm (last visited Nov. 15, 2004).
235 C. Eugene Steuerle, Comment, in Rethinking Estate and Gift Taxation 108, 109 (William G. Gale et al. eds., 2001) (commenting on Barry W. Johnson et al., Elements of Federal Estate Taxation, in Rethinking Estate and Gift Taxation, supra, at 65).
236 See John Laitner, Inequality and Wealth Accumulation: Eliminating the Federal Gift and Estate Tax, in Rethinking Estate and Gift Taxation, supra note 235, at 258, 281.
237 See Johnson et al., supra note 235, at 65; see also William G. Gale & Joel Slemrod, Overview, in Rethinking Estate and Gift Taxation supra note 235, at 1, 6.
238 Myriad special rules provided lower valuations and deferred payments for farms and closely held businesses.
239 See generally Richard B. Stephens et al., Federal Estate and Gift Taxation � 5.06 (8th ed. 2004).
240 For a vivid description of the campaign for repeal of the estate tax, see Johnston, supra note 233, at 71–91.
241 Johnson et al., supra note 235, at 75.
242 Id. at 76–77.
243 James M. Poterba & Scott Weisbrenner, The Distributional Burden of Taxing Estates and Unrealized Capital Gains at Death, in Rethinking Estate and Gift Taxation, supra note 235, at 422, 439–42.
244 See generally Staff of Joint Comm. on Taxation, Summary of Provisions Contained in the Conference Agreement for H.R. 1836, The Economic Growth and Tax Relief Reconciliation Act of 2001, at 9–12 (JCX-50-01) (May 26, 2001), available at http://www.house.gov/jct/x-50-01.pdf.
245 John Laitner, Inequality and Wealth Accumulation: Eliminating the Federal Gift and Estate Tax, in Rethinking Estate and Gift Taxation, supra note 235, at 258, 281.
246 U.S. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2005 Revenue Proposals 5 (2004), available at http://www.treas.gov/offices/
tax-policy/library/bluebk04.pdf.
247 Generally speaking, “qualified property” is modified accelerated cost recovery system (“MACRS”) property with a recovery period of twenty years or less, computer software (not subject to � 197), water utility property, or qualified leasehold improvement property, the “original use” of which commenced.
248 The 2003 Act amended � 168(k) to increase the deduction to 50% of the adjusted basis of qualified property placed in service after May 5, 2003, and extended the deduction until December 31, 2004.
249 The President’s 2005 Fiscal Year Budget proposals do not call for extending this provision. See generally U. S. Dep’t of the Treasury, supra note 246.
250 For taxable years beginning after 2004, the upper limit of the 15% rate bracket for married taxpayers filing joint returns reverts to the amount provided in I.R.C. � 1(a) & (f) prior to enactment of the 2003 legislation. The 2003 Act also increased the standard deduction for married couples filing a joint return for 2003 and 2004.
251 See I.R.C. � 1(i) (West Supp. 2004). In 2005, the upper limit of the 10% rate bracket reverts to the amounts provided under the 2001 legislation (which are not adjusted for inflation).
252 Rev. Proc. 2003-85, � 1(a), 2003-49 I.R.B. 1184.
253 See Tax Policy Ctr., Urban Inst. & Brookings Inst., Number of Tax Units by Tax Bracket tbl.T03–0215 (Dec. 19, 2003), available at http://www.taxpolicycenter.org/
TaxModel/tmdb/Content/PDF/T03-0215.pdf.
254 I.R.C. � 24(a)(2). After 2010, the amount of the credit reverts to $500. The statute says the amount of the credit is $1000 for “2010 or thereafter,” but because the amendments made to � 24 by the 2001 tax legislation are scheduled to terminate at the end of 2010, without further legislation, the per child credit amount will revert to $500 in 2011.
255 The 2003 Act also increased the amount deductible under I.R.C. � 179 to $100,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005. In addition, for those years, the dollar-for-dollar phase-out of the amount begins when the cost of property placed in service exceeds $400,000 (adjusted for inflation in 2004 and 2005).
256 More specifically, “adjusted net capital gains” (as defined in I.R.C. � 1(h)(3)) realized by noncorporate taxpayers after May 5, 2003, and before 2009 are taxed at 15% if the taxpayer is otherwise in the 25% or higher marginal tax bracket, and at a 5% rate if the taxpayer is otherwise in the 10% or 15% marginal tax bracket (with a special 0% capital gains rate for 10% and 15% bracket taxpayers in 2008). Long-term capital gains excluded from the definition of “adjusted net capital gain” continue to be taxed at the same rates as before May 6, 2003. “Unrecaptured I.R.C. � 1250 gains” are taxed at a maximum rate of 25% if the taxpayer’s normal marginal rate is 28% or higher (and at the taxpayer’s normal rate if it is 25% or lower). Gains from collectibles held for more than one year generally are taxed at the taxpayer’s normal marginal rate if the taxpayer is subject to a marginal rate of 28% or less and at 28% if the taxpayer normally is subject to a marginal rate of 33% or higher. Due to the mechanics of the calculations under I.R.C. � 1(h), there is a possibility that a taxpayer in a tax bracket below 28% who has a significant amount of adjusted net capital gain taxed at 5% or 15%, along with collectibles gain, might have collectibles gain taxed at 28%.
257 I.R.C. � 1(h)(11) (West Supp. 2004). There is a special 0% rate for 10% and 15% bracket taxpayers in 2008. A dividend is eligible for the preferential rates under I.R.C. � 1(h)(11) only if the shareholder holds the share of stock on which the dividend is paid for more than sixty days during the 120-day period beginning sixty days before the ex-dividend date. IRC � 1(h)(11)(B)(iii). Although I.R.C. � 1(h)(11) treats dividends as “adjusted ne