Judd Gregg's dubious tax math

In an otherwise not-all-that-objectionable op-ed piece in Monday's WSJ, Republican New Hampshire Senator Judd Gregg (or one of his staffers) writes:

The growth in tax revenues from 2002 through 2007 were some of the largest in history. The tax system became much more progressive, with the top 20% of income earners paying 85% of the taxes -- a rate much higher than during the Clinton years -- all while keeping capital-gains rates low.

I'll blame the WSJ opinion editors for the verb-subject disagreement in the first sentence. But I'm assuming the facts came from Gregg. Except they're not quite facts—and since this sort of tax disinformation is pretty common, I couldn't resist wasting an hour digging up the data to refute them.

Non-fact No. 1: The tax revenue gains from 2002 through 2007 weren't "some of the largest in history," unless you define "some" extremely broadly. Adjusted for inflation, U.S. government revenue rose 20% from 2002 to 2007. That ranks 24th among the 58 rolling five-year periods between the end of World War II and 2007. Just barely above average. It also fails to take into account the sharp fall in tax revenue from 2001 through 2003. Over the full eight years of the Bush administration, it appears likely that federal revenue growth will be just about zero. Over the eight Clinton years it was 58%.

Non-fact No. 2: The percentage of federal taxes paid by the top 20% of the income distribution in 2005 (the most recent year covered by the Congressional Budget Office's annual examination of tax rates and the income distribution) was 69%. The percentage of federal income taxes was 86%.

That's a quibble, and both these percentages are in fact higher than they were at any time in 1990s, just as Gregg argues. This wasn't because the tax system became more progressive, though. It was because the income distribution became more unequal. People in the top 20% took home a greater share of the nation's income, so they paid more taxes. Their effective federal income tax rate actually went down, from 17.5% in 2000 to 14.1% in 2005. So did everybody else's income tax rates—when you're just looking at income quintiles, the tax system did not get markedly less progressive during the Bush years either.

Things get more interesting at the very top of the income distribution, according to a supplemental report (pdf!) the CBO prepared at the request of Senate Finance Committee Chairman Max Baucus. Those in the top 0.01% (those making $8.6 million and up) faced an effective federal income tax rate in 2005 of 17%—while the 0.09% just below them paid 19.9%, the 99.5th to 99.9th percentile paid 20.7%, and the 99th to 99.5th percentile paid 19.4%. This kink in the progressivity curve has been around for a while—it's there because capital gains are taxed at lower rates than regular income, and really really really rich people tend to get a much higher percentage of their earnings from capital gains than the mere strivers down at the 99th percentile do. The cuts in tax rates on capital gains and dividends during the Bush years accentuated this kink, so on the whole a fair-minded observer would have to say the tax system became somewhat less progressive. Which isn't what Judd Gregg said.