Today is tax day. As millions of Americans finish filing their 2010 federal income taxes, 47 percent of their fellow citizens will pay no federal income tax.
That’s right. Nearly half the country pays nothing* towards a government that in theory represents everyone. A family of four earning $50,000 pays nothing in federal income taxes. Nearly 40 percent of those 47 percent actually profit from the tax system, getting back in credits more than they would have owed. They’re actually paid to not pay taxes!
Politicians of both parties going back decades share the blame for this. They promise something for nothing to taxpayers to get their votes, then try to make up the difference by higher taxes on the “rich” or by borrowing the money. (The top 10 percent of earners pay 73 percent of the taxes, but realize that “rich” starts at $366,000 in earnings, and some of them are actually small businesses that file taxes as individuals.) We constantly hear pleas for the “rich” to pay their “fair share,” but that’s a mighty weird definition of “fair” if in reality it means the lion’s share. Besides, we can raise taxes on the “rich” to levels unseen in decades and still not make a dent in the federal deficit.
Nearly half of the country couldn’t care less that the Federal Reserve has said that if current policies persist, in a mere 10 years the country will have to pay $1 trillion a year just to pay the interest on all the money we’ve borrowed. That’s $1 trillion before we spend a single penny on defense, highways, Social Security, or anything else. But to 47 percent of Americans, it’s someone else’s problem.
There’s something wrong here. How can we as a country deal with the very serious financial situation we’ve spent ourselves into when so many people have no personal stake in the matter? Where is the sense of shared sacrifice that is part of citizenship? This sense of entitlement by so many, stoked by politicians eager for votes, is a moral corruption that will destroy us faster that massive debt ever will.
*Yes, I’m aware that most people still pay state and local taxes. But then again, so do the “rich,” so that issue is largely moot.
April 15th, 2011 | 9:25 am
I’ve been uneasy about this myself. I profited several thousand dollars from filing taxes this year, based on refundable credits.
This can’t go on.
April 15th, 2011 | 9:28 am
The percentage of total taxes paid by the top 10% of earners tells us nothing about “fairness” unless we also know the percentage of total income that is earned by the top 10% of earners. I can’t find that statistic in your discussion.
April 15th, 2011 | 10:06 am
Not everyone pays income tax because unfortunately, not everyone has a job. Everyone pays local, state, and sales taxes unless they never buy anything.
The top 10% of earners pay 73% of taxes — what you call the “lion’s share” —because they take home more than 60% of the income in this country. Yes, the “lion’s share” of income.
This 73% argument is idiotic and keeps being trotted out like it means something. Tax revenues reflect INCOME DISTRIBUTION. Unless that changes, the wealthy will and should pay more than the poor.
If the tax rate 20% — even if it was a flat tax — someone who made $500,000 a year would pay $100,000 in taxes and someone who made $25,000 a year would pay $5,000.
Yes, that’s right, the rich would pay 95% of the taxes, not just 73%
The top 10% will always pay more than the next 10% in taxes, and so on, unless everyone earns the same amount, or unless the top 10% are taxed at ridiculously low rates so that the selfish will stop complaining. That is how taxes work.
April 15th, 2011 | 10:11 am
Hi Tom,
Thanks for posting this. This year I found myself among that 40% of 47%, and I’ve been in a state of disbelief about it. 2010 was my last year in graduate school, my wife worked only half time, and we had our second child. Still, our gross income was almost 50K. And yet, when I computed my taxes, I found that in addition to being owed all the estimated taxes I had made, the federal government owed me an additional $800, due to the “Making Work Pay” tax credit. What’s more, I just received my rebate today, and the amount refunded to me was an additional $500 beyond even that, for reasons I don’t yet understand.
My family situation strikes me as utterly ordinary, and I find it patently unfair that I am a liability with respect to federal tax revenue. I have yet to decide whether I can honestly accept the payout.
Why is this not a bigger issue? It makes me a little weary of ever seeing reasonable change on this issue. I see the incentive structure of election cycle as only furthering these kinds of trends, and don’t see any way to change it. There has to be some way to make this fact more visceral; the numbers kind of just wash over you.
April 15th, 2011 | 10:19 am
There’s a factual error in this post: Federal income taxes on “the rich” in the US have fallen drastically since 1980, from 94% (1944) and 92% (1952) to 35% (2010). And this doesn’t even account for the many, many deductions and exemptions that are now available, as a result of which the real rate is lower than 35%. Also, that highest income bracket that pays that much has risen to a minimum income of $373,000 for single filers.
So why are “the rich” paying so much more if the rate at which they pay has fallen? Could it be a drastic rise in income inequality, while inflation-adjusted real wages at the bottom have stagnated since the 1970s? For the most part, yes.
And don’t forget what less than 35% of $373,000 (since everything up to $373,000 is taxed at less than the 35% of everything in excess of $373,000) means compared to 15% of the $5,000 that one makes above $11,950. But I strongly suspect that the author doesn’t make and couldn’t fathom making only $16,950 this year. Try it sometime.
April 15th, 2011 | 10:21 am
Doesn’t that family of 4 pay Social Security and Medicare taxes to the federal government? While not technically Income Tax, they are taxes on income, right?
April 15th, 2011 | 10:34 am
Nearly 40 percent of those 47 percent actually profit from the tax system, getting back in credits more than they would have owed. They’re actually paid to not pay taxes!
That’s simply not true, which makes me wonder if the essayists on this topic are being deliberately misleading.
Let’s take a one-person income of $50,000 in a family of four. The standard deduction is $11,400. The four dependents (spouse, two children) come in at $3,650 a pop, which takes you down to $29,000 of taxable income. The 1040 tax tables place their tax obligation at $3,516. The Child Tax Credit removes only $2,000, leaving them with a tax obligation of $1,516. The Earned Income Tax Credit doesn’t apply for a family of four at $50,000, although it might kick in at not much less ($45,373).
So, to arrive at paying nothing in taxes, they have to have at least a few more deductions to avoid any tax burden. On the other hand, even if they do receive a refund that is more than $1,516, it fails to eliminate their tax burden. Taxes for Social Security and Medicare combine to take nearly another 10% of their income (say $3,000 to be safe) and there are no deductions from that.
On the other hand, anyone earning more than $106,800 pays nothing on those taxes beyond the tax on the first $106,800. Someone earning $156,800 isn’t paying any Social Security or Medicare taxes on the $50,000 over and above that cap. That would come to the same amount, but you don’t seem to be complaining about that.
April 15th, 2011 | 10:47 am
April 15 isn’t tax day this year, thank goodness for the proliferation of newish holidays:
IR-2011-1, Jan. 4, 2011
WASHINGTON — The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.
Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.
April 15th, 2011 | 10:50 am
Jack,
You have an error in your calculations. 50,000 income would result in an adjusted gross income of 24,000: 50,000 minus 11,400 (standard deduction) minus 3,650 * 4. Tax on this is $2,766. Take out the child deductions ($2,000) *and* the “Making Work Pay” deduction leaves a net refund of $34, a liability on federal income tax revenues.
Matt
April 15th, 2011 | 10:50 am
Here is a much more balanced view from the Christian Science Monitor:
http://www.csmonitor.com/Business/2010/0412/Tax-day-101-Who-pays-no-income-taxes-on-April-15
April 15th, 2011 | 11:09 am
Jack Perry
You fail to mention other likely deductions that such a family would have: mortgage interest, interest on student loans, charitable giving, and any number of others, which would easily push them from the “owing” column to the “refund” column.
And if I read the blog right, the issue isn’t lowering or raising tax rates on this or that income group. It’s the fact that a very large portion of our population has no stake in the larger tax debate since it doesn’t affect them–directly, at least. How is it fair that such a large portion of our population can get away with this? How do we live in a representative government when half of the population doesn’t contribute to its functioning? (The Medicare, Social Security, etc. hits everyone and, in theory at least, go to pay for things aside from the functioning of government.)
April 15th, 2011 | 11:19 am
Excellent comment, Marie. Much better put that what I was going to write.
The reason its show the rich paying a larger percentage of the taxes is because income difference between the rich and middle class is so high. In 2007, the *average* worker would have had to have start working in 900 A.D. to bring home what the top CEO earned in 1 year. And by average worker I mean a teacher, plumber, or electrician — not some illegal immigrant picking crops.
It is also worth noting that throughout the 1950′s–a decade for which American conservatives pretend to feel a harrowing sense of nostalgia–the marginal tax rate for the wealthy was over 90 percent. In fact, prior to the 1980′s it never dipped below 70 percent.
April 15th, 2011 | 11:35 am
This argument about tax rates is really pointless, because you could take every last dime that the people earning over $250,000 a year make (and that would only be a one shot deal because I doubt many people would continue working for nothing) and you still would not resolve our government spending problems.
I really do not understand how people think it is moral to saddle our children and grandchildren with all of this. There is a disaster looming ahead of us and very few people appear to be taking it seriously.
April 15th, 2011 | 11:50 am
The top 10% of earners pay 73% of taxes — what you call the “lion’s share” —because they take home more than 60% of the income in this country. Yes, the “lion’s share” of income.
This line of reasoning reminds me of the employer who promises his sales force incentives for success – then gets mad when he has to pay too much because a few guys are wildly successful.
Why on Earth should anyone be punished for working, or rewarded for not working?
April 15th, 2011 | 11:55 am
How about having corporations pay taxes? Last year, GE didn’t pay any taxes, either. Seems a bit more sensible to tax large, highly profitable businesses before taxing middle and working class families.
April 15th, 2011 | 11:56 am
I don’t think saying that the people with no income tax liability are “getting away with this”, any more than wealthy people who set up accounts and devices that lower their tax burdens and corporations that do the same thing are getting away with anything: you are allowed, in this country, to act according to the law to make your tax liability as low as possible. I notice that those commenters who are critical of the post are questioning whether the rich are paying enough, or whether the figures are correct, but they do not seem to engage on the substance; is it fair, or wise, for such a large percentage of the population to not pay income taxes? (For the purposes of this discussion I do not think Social Security and Medicare taxes are relevant, since deductions and credits do not affect them.) Is this an issue we should be concerned about, and if so, how do we fix it?
April 15th, 2011 | 12:04 pm
“Why on Earth should anyone be punished for working, or rewarded for not working?”
Blake,
You’ve absurdly equated “working” with being part of “the top 10% of earners.” As if the other 90% either aren’t working or don’t want to work (given that they also make up the vast majority of the unemployed in today’s terrible economy). I don’t understand why those earning so much want, in addition to their wealth, the sympathy of the rest of us as if their lot is so horrible; it’s not.
April 15th, 2011 | 12:17 pm
Let’s look at those figures again —
“The top 10% of earners pay 73% of taxes — what you call the “lion’s share” —because they take home more than 60% of the income in this country. Yes, the “lion’s share” of income.”
So they are still paying *out of proportion* to how large a proportion they are earning.
There are various ways this could be justified, but I don’t think that showing that they pay *disproportionately* to how they benefit exactly makes a great case for why it’s “fair.”
April 15th, 2011 | 1:19 pm
I think it’s a big jump to say that just because someone doesn’t pay federal income taxes, then they “couldn’t care less that the Federal Reserve has said that if current policies persist, in a mere 10 years the country will have to pay $1 trillion a year just to pay the interest on all the money we’ve borrowed.”
April 15th, 2011 | 1:21 pm
Pentamom – as is obvious from your quote, Marie specifically objected to Neven’s “lion share” line, because it’s misleading in light of the US population’s income distribution which he omitted from his post. Marie didn’t specifically say she was making a case for why it’s “fair” for the rich to shoulder 73% of the tax burden when they only make 60% of the nation’s income. But I think it’s perfectly defensible to say the rich should pay a higher rate than the poor – it might not be “fair,” but I think it’s “just” to ask wealthy people for more of their disposable income. I won’t claim it’s bad for a person to own two vacation homes, but I do think it’s just that such a person be required to pay a greater percentage of their income in taxes than the family that can’t afford to take a vacation.
April 15th, 2011 | 1:25 pm
Matt
You have an error in your calculations.
So I do. I wish I had a tape on my calculator so I could see what I typed wrong.
…*and* the “Making Work Pay” deduction…
This is not a permanent deduction (yet), so I excluded it deliberately.
Buzz You fail to mention other likely deductions that such a family would have:
Whether such deductions are “likely” for a family of four at $50,000 depends on quite a few factors. Not everyone owns a McMansion or goes to an elite private college.
And if I read the blog right, the issue isn’t lowering or raising tax rates on this or that income group. It’s the fact that a very large portion of our population has no stake in the larger tax debate since it doesn’t affect them–directly, at least.
Where did I suggest that the issue was lowering or raising tax rates on this or that income group? The issue is one of facts: whether half the filers pay no tax, or pay no income tax. To say that they pay no tax at all is simply wrong. Moreover, to get on a high horse about that, while not expressing concern that the wealthy pay no payroll tax at all above the cap, seems bizarre.
The Medicare, Social Security, etc. hits everyone and, in theory at least, go to pay for things aside from the functioning of government.
(1) In theory, ever since the people decided that Medicare, Social Security, etc. lie within the domain of government, they pay for the functioning of government regardless.
(2) In practice, they do pay for the functioning of government.
NB I am not opposed to reducing some of these deductions or credits. I am concerned that the crowd that is anti-tax at all costs is misrepresenting matters no less than the crowd that is pro-spending at all costs.
April 15th, 2011 | 1:42 pm
So they are still paying *out of proportion* to how large a proportion they are earning.
Pentamom,
I don’t have any dependents, and I didn’t rack up enough medical expenses this year to take any medical deductions. I did give to charity, but for the sake of argument, let’s pretend I didn’t. As a consequence of all this, I am going to pay more taxes than somebody with the exact same income who has 4 children, paid $10,000 out of pocket for medical expenses, and gave $5000 to charity. Is that fair? I have no problem with it.
April 15th, 2011 | 2:08 pm
Jack
One needn’t own a McMansion to have a mortgage interest deduction. All you have to do is have a mortgage–hence the name.
And one needn’t go to an “elite private college” to have student loans and the interest that goes with them. Many a state-university student and even students at trade schools are in exactly that position.
And it’s interesting that you mention that the “wealthy” pay no Social Security on income above a certain level. That’s an artifact of the original purpose of Social Security: a safety net for those who, because of income or other reasons, could not save enough to support themselves in retirement. The thinking was that if you made above a certain level, you had the resources to sock some of that away for retirement, and the cap was meant to facilitate that.
But ever since Lyndon Johnson started his shell game of spending Social Security money to pay for general government expenditures (his way of having a war on poverty and a war in Vietnam at the same time without having to raise income taxes), the original purpose of the cap has been lost.
April 15th, 2011 | 3:07 pm
In other news of shocking injustice, it seems that non-smokers are paying 0% of tobacco taxes. How is that not absolutely the greatest injustice ever done in the history of not only the world but the entire universe?
April 15th, 2011 | 3:13 pm
Boonton
Yeah, shocking. Amazingly enough, the money I pay into Medicare and Medicaid is being used to keep a lifelong smoker with emphezema alive, despite decades of warnings about the dangers of smoking.
Go figure!
April 15th, 2011 | 3:37 pm
Highly unlikely Buzz, unless you’re fantastically rich.
Only people like Donald Trump pay Federal taxes. People like you pay nothing and have ‘no personal stake’ in the system according to Tom. That’s why you’re forcing good, salt of the earth people like Donald Trump to pay tax rates ‘not seen for decades’*
* ‘Decades’ meaning the 1990′s when rich people were lead away to Concentration Camps and gassed you know.
April 15th, 2011 | 3:38 pm
Buzz
In order to have a mortgage interest deduction that actually deducts anything, the sum of all those itemized deductions must exceed the standard deduction. Otherwise, one cannot take any of the itemized deductions.
The average family on a $50,000 income does generally have expenses that allow for a mortgage interest deduction. I might not be average, but, for example, I do earn about that much, and I am the sole source of income in my household. I pay mortgage interest at a fairly high rate, yet I receive no benefit from the mortgage interest deduction.
Student interest is different; that’s deducted directly from income. On the other hand, the maximum one can deduct is $2,500. Student loan rates have generally been around 7% max the last few years. To reach $2,500 interest would require roughly a $36,000 loan. The average student loan, for public or private, isn’t that large. Even if it were, a $2,500 deduction isn’t going to make much of a dent in one’s tax burden if total income is $50,000.
April 15th, 2011 | 3:40 pm
Oops. I wrote The average family on a $50,000 income does generally have… but in the context of my argument I obviously meant does not have…
April 15th, 2011 | 3:47 pm
Buzz – Re. the mortgage interest deduction. You can calculate that if you like on this family of 4, but then you can’t use the standard deduction in this scenario. (In which case, this family might benefit from having a McMansion in a high tax state, and itemize rather than using the standard deduction.)
Re. Matt’s calculations – where did you get $3650 x 4? I got lost there.
And as we mentioned, they are still paying Social Security and Medicare taxes.
I know this family must be totally bilking the federal government at the expense of wealthy taxpayers, because that’s what the pundits tell me (so it must be true), but I’m not sure the numbers actually show this.
The poor and lower-middle class have such a stranglehold over Washington, that’s for sure.
April 15th, 2011 | 4:01 pm
[...] First Things is usually a good web site, but sometimes they write things that baffle me, like this recent post on how our taxes are so unfair to rich people. That’s right. Nearly half the country pays [...]
April 15th, 2011 | 6:06 pm
I can only express exasperation at how many people completely misread this blog and jumped to conclusions that simply aren’t there.
Some mistook discussion of percentage of taxes paid with a discussion of the tax rate. Others assumed it was a complaint about the rich having to pay too much in taxes.
No, the issue is quite plainly stated in the title, “Somebody Else’s Problem,” and in the concluding paragraph. It’s a moral issue if some can urge the government to shower them with goodies and benefits without the worry of actually having to contribute to the process. It’s part of the reason we’re in the present economic mess: the politicians’ promise of something for nothing and a gullible citizenry going along with the scam, either out of ignorance or greed.
April 15th, 2011 | 6:10 pm
“Why on Earth should anyone be punished for working, or rewarded for not working?”
Blake,
You’ve absurdly equated “working” with being part of “the top 10% of earners.” As if the other 90% either aren’t working or don’t want to work (given that they also make up the vast majority of the unemployed in today’s terrible economy). I don’t understand why those earning so much want, in addition to their wealth, the sympathy of the rest of us as if their lot is so horrible; it’s not.
People who invest their resources may be counted as “doing work” under capitalism.
It might not seem unfair, if you have to lift heavy boxes for minimum wage, but that is how capitalism works.
And, yes, I do believe an awful lot of the people who don’t pay taxes are people who do not earn their own way.
April 16th, 2011 | 12:20 am
This blog entry raises questions but provides absolutely no analysis. I find it fascinating that frequently it is conservatives who criticize the heavy tax burden on citizens, then when the burden is lifted criticize people (frequently families) for sucking off the teat of government. It’s essentially a no win proposition.
A more interesting analysis would have asked,why is it that 47% of the population pay no federal income taxes? Instead of simply asserting that politicians “promise something for nothing to taxpayers to get their votes” one could actually examine the reasons people have increasingly been freed from this particular tax burden. As even a superficial analysis would show, the two largest mechanisms that lift people off the the Federal income tax rolls are the Earned Income Tax Credit and the Child Tax Credit. Both of these credits are consistent with goals conservatives ought to be championing, at least social conservatives. The EITC encourages low income workers to seek and maintain employment instead of slipping onto the welfare rolls (that famed socialist Ronald Reagan called this credit, which he expanded in 1986 , “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”) The Child Tax Credit, however, is what is truly inflating the numbers of people not paying federal income taxes. Needless to say this policy was advocated by pro-family conservatives, but there is a powerful argument to make that there are tangible economic benefits because it treats children as an investment instead of a burden. It seems to be this is exactly the kind of tax policy are Federal government should be pursuing, particular when one believes that the family is the first and most basic unit of society.
So if these two credits are the two reasons why that 47% figure (which significantly, as has been noted above does NOT include Federal payroll taxes) is so high, which one does the author want to repeal? Which one should we repeal in order to have a more moral system? Or is the real point of the post to oppose the progressive tax system altogether? That is fair debate to have but one that should be had openly and honestly.
Ultimately, the central thesis of the post is the assertion that 47% of people pay no federal income taxes thus encouraging them to support an ever expanding welfare state at a cost to the hardworking 53% of people who pay taxes.This assertion has no basis in fact and not a shred of evidence is offered to prove it. Has support for the welfare state surged since the mid-1990′s when the Child Tax Credit was enacted? How many “Tea Party Patriots” protesting the increasing scope of government actually benefit from the Child Tax Credit? Judging from what I have seen of the Tea Party, quite alot. Yet they seem to manage to support reining in government spending. Meanwhile, those on the other side of the protests seem to be mostly public sector unions and workers. They certainly don’t fall into the EITC exemption, though perhaps some of the would fall into the Child Tax Credit exemption. Does the author really think this is what animates their opposition to public sector reform? Or is it more likely as it would appear that they are motivated by what they claim, that is protecting direct payments and promises to pay from the government?
There are many good arguments to be made for reforming our nation’s tax code and making it more moral, just, and virtuous. This post is not one of them.
April 16th, 2011 | 1:32 am
This post raises a real question, but is hard to take seriously when it makes such sweeping and uncharitable statements like “Nearly half of the country couldn’t care less” (really? all 47%? and he knows this how?) and suggests they’re morally corrupted and lack “a sense of shared sacrifice that is part of citizenship” (and we are supposed to assume that the rich have a greater one?).
It is far more likely that most of these people care, because they’re the ones who will be hurt most when things get worse. They’re the ones who scan the headlines with trepidation each morning. The 10% will be fine.
Mark Barrett raises several important questions, not least about the item’s lack of reflection on the source of the problem. A middle class father who is getting tax credits for his children is invested in the economy because he is invested in his children — raising whom can be a struggle even with the tax credit. He may be more acutely aware of others of the dangers and the cost of dependency upon the government, because he’s going to be paying for it soon if he isn’t already, and having raised children isn’t gong to have the resources others have.
These people “have no personal stake in the matter”? Good grief.
April 16th, 2011 | 1:53 am
How do the rich make their income? Some are part of families of wealth and simply by being born are wealthy. Not sure what percenatge of the rich are born rich, but do not think it is that high. However, those people buy things that create jobs often in large quantitites. Many also invest in companies that create jobs. If the money is taken by the government and it is poured down the drain as most federal and state spending does, we will get far less impact.
Many of the “rich” are small business owners who often have risked everything and sacrificed for years to build up their business. Why is it that in America we want to see these people pay huge taxes as opposed to seeing them expand and higher even more people, especially in a time of high unemployment? Also, because they worked for years and often sacrificed much, what right does anyone else have to demand that their designated their called the government should be able to steal from them to give it to me? If you think you deserve their money, at least have the decency to go and steal it yourself.
Others join the high income areas because they worked to educate themselves, got a job and worked their way up the food chain, again often with great sacrifice to self and family. Somehow it does not seem right to take his money and give it to someone who did not apply themself at the paid for public school and then was not willing to give up everything to work hard and make the big money.
We use to praise those who worked hard and made it in America. Now for some reason, we instead root for the government to take the money they earn and give it to us.
the last thing is that many things we see in later life that come in benefits from government are increasingly based on wealth and income. This often means those who have paid in the most over they years now is not even eligilbe or limited in what benefits they can recieve.
What ever happended to the real America…
April 16th, 2011 | 9:05 am
Tom,
Some mistook discussion of percentage of taxes paid with a discussion of the tax rate. Others assumed it was a complaint about the rich having to pay too much in taxes.
This question can’t be divorced from rates and income distribution. Imagine a flat 10% tax on income with no brackets. If the top 10% make 70% of the income you will still have 70% of taxes paid by 10%.
Think about it for a moment, you’d need a regressive tax (higher brackets for the bottom, lower for the top) to ‘solve’ that problem. We have lower top brackets today than we did in the last 50 years. The disporportion is caused by income inequality increasing alone.
So hopefully you can see why your complaint raises so many hackles. We drop rates on the rich, then the rich get richer even faster than their rate drop and you complain that we’re mistreating them. Your ‘someone else’s problem’ issue would make sense if you were talking about all taxes but you’re only talking about one type of tax.
http://www.factcheck.org/askfactcheck/whats_the_percentage_breakdown_of_the_governments.html
Only 45.3% of Federal receipts came from individual income taxes. 33.9% came from payroll taxes (social security, Medicare, unemployment etc.) and 14.4% from corporate income taxes. Excise taxes are 2.5% (think tobacco, gas etc.) and 3.9% from ‘other’ like custom duties, estate taxes, gift and fees.
By focusing on only one type of tax your post is quite frankly absurd. Why not complain that 100% of the tobacco tax is paid by people who smoke while 0% is paid by non-smokers?
No, the issue is quite plainly stated in the title, “Somebody Else’s Problem,” and in the concluding paragraph. It’s a moral issue if some can urge the government to shower them with goodies and benefits without the worry of actually having to contribute to the process.
Actually people pay payroll taxes and most of the ‘goodies’ people get are, well social security and Medicare.
It’s part of the reason we’re in the present economic mess: the politicians’ promise of something for nothing and a gullible citizenry going along with the scam, either out of ignorance or greed.
You mean Republican politicians. Something for nothing? Bush tax cuts, Medicare D. (Let’s forget the wars) The health reform had spending cuts and tax increases with it. The previous goodies had nothing to ‘pay for them’ even in the most symbolic sense. Before that that the gov’t was in surplus.
Back out the recession and tax cuts and you essentially have no serious deficit. The future hypothetical deficit consists of an assumption that medical expenses will continue to grow faster than everything else. That is not a political problem, it’s an economic one. Private insurance is growing just as fast, even faster. If that trend continues we will either have to drastically slash what we’d normally want to spend on health or slash other things. Whether it will or not is unknowable. Medicare D ended up costing a lot less than projected simply because the cost of drugs started to flatten out.
April 16th, 2011 | 10:06 am
http://www.offthechartsblog.org/top-ten-tax-charts/ offers an interesting chart, see “Effective Tax Rates on Wealthiest People”….note that the top 400 families are paying an effective Federa rate of under 20%, less than even households with $1M+ net income. How? Probably because capital gains are taxed at a much lower rate than regular wage/salary income.
This leads to more interesting moral injustices via Tom’s odd method of only looking at one type of tax and who pays for it. The following reforms are needed:
We need to start charging homeless people for capital gains taxes. Homeless people almost never buy and sell stock! That means almost all the capital gains taxes are going to people who make capital gains!
Nuns living in vows of poverty in convents must immediately be hit with luxury taxes. Otherwise all luxury taxes will be paid only by people who buy luxury items!
If you inherited nothing from your deadbeat parents, well you must pay estate tax. Otherwise estate taxes will be all paid by people who inherit estates! Pay now so you can start working off your debt to Paris Hilton when her parents go!
Special taxes need to be assessed against Mormons as their refusal to booze it up results in heavy drinkers paying all the booze tax (you hear me Mitt Romney! Your exploitation of Charlie Sheen must end now!)
April 16th, 2011 | 10:54 am
[...] The solution is so openly obvious they cannot see it. [...]
April 16th, 2011 | 12:31 pm
Tom,
I’m not sure I even understand the reasoning in the original post. Your argument says, essentially, 1) 47% of people don’t pay taxes
Tf,
2) 47% of people don’t care what happens to the federal budget.
That just doesn’t follow. This year, due to being a graduate student with a very low income, I owed no taxes. However, I still care a lot about the future of the federal budget. I don’t want the government to default on debts and see the dollar collapse; I don’t want to see taxes raised so high that the economy suffers; I don’t want to see vital government programs get cut.
All of those things affect me regardless of whether I happened to pay taxes this year.
April 16th, 2011 | 1:16 pm
Greta
Others join the high income areas because they worked to educate themselves, got a job and worked their way up the food chain, again often with great sacrifice to self and family.
I don’t think we ought to reward people who sacrifice family for higher income. Quite possibly, one problem with this country is that too many people are doing that.
Somehow it does not seem right to take his money and give it to someone who did not apply themself at the paid for public school and then was not willing to give up everything to work hard and make the big money.
The implicit assumption of your argument is that a higher income corresponds to higher work in a position that is more valuable to society. That’s not a tenable assumption.
So, what if we took that money and gave it to the guy who applied himself at the paid-for public school, and took a job that was no less necessary for the well-being of society, but that (for whatever reason) isn’t paid correspondingly?
For example, everyone says we need more and better science teachers, and in many areas of the country there’s such a stark shortage that they’re importing teachers sight unseen from abroad. I know a teacher who earned a PhD in a scientific field, worked in industry a few years, then decided to teach kids. After a number of years, he’s getting paid on the order of $45,000 a year. (Don’t know for sure; haven’t seen him in a while.)
I also read in the local paper that a local high school football coach is paid $90,000/yr. Why? because his kids can outplay other high schools in my area?
I understand that you object to our taxing the coach high in order to give it to a fast food chef; fair enough. But perhaps we should tax the coach’s salary high enough to where we can reward the science teacher?
Similarly, maybe we should tax the income of Katy Perry, Lady Gaga, Britney Spears, et al. at 95% and give that money to high school music teachers? or, if not them, to high school science teachers?
Now, I’m not advocating that. I’m just illustrating that a higher salary does not correspond to harder work or higher sacrifice.
We use to praise those who worked hard and made it in America. Now for some reason, we instead root for the government to take the money they earn and give it to us.
Here’s another analogy. Let’s take a couple with high school degrees, who combined earn a $100,000 salary, but never have kids because of the financial expense, the inconvenience, and so forth.
On the other hand, consider a family where one parent stays home to raise the children, so that their annual income is only $50,000.
When they retire, the same Social Security and Medicare benefits are due to both (perhaps more to the wealthier couple, due to how Social Security works — I’m not clear on that). But where does the money for these benefits come from? Taxpayers left in the system. The first couple had no children, so their retirement is being paid by whom? The children of the family that not only earned less, but inconvenienced their lives to have children. Do you really think the tax burden should be the same for both couples?
It used to be in this country that we valued stable families, and sacrificing self for family. Now we value sacrificing family for self — or for a higher income, because we think that will benefit ourselves.
April 16th, 2011 | 4:56 pm
David Nickol, my only point is that if the people who get 60% of the income are paying 74% of the taxes, it’s hard to argue that they are, *as a group,* paying *less than* their share. There may be other arguments to be made, such as ability to pay, but arguing that because they make 60% of the income it’s somehow in and of itself unfair that they’re not paying *more than* 74% of taxes makes no sense to me. There may be other inequities, but this isn’t one.
April 16th, 2011 | 4:58 pm
But I second Stephen P’s point — the assertion that the 47% who pay no taxes in a given year have no stake in things is at best unproven, at worst, absurd. Because I have 3 kids under 17, give to charity, and have a mortgage, our family has not paid in, in several years. But the idea that I don’t therefore have any motivating reason to care what happens is ridiculous. People in my position might *think* they don’t have a reason to care, but they’d be very, seriously, tragically wrong.
April 16th, 2011 | 6:37 pm
So you are suggesting a family of four earning $50,000 should be required to pay federal taxes? How abominable.
April 16th, 2011 | 7:23 pm
pentamom
But I second Stephen P’s point — the assertion that the 47% who pay no taxes in a given year have no stake in things is at best unproven, at worst, absurd. Because I have 3 kids under 17, give to charity, and have a mortgage, our family has not paid in, in several years….
Well something else to consider. When we talk about taxing and spending in the economy of, say, 2030 we are talking about the economy created by Pentamom’s kids. So let’s just say that Pentamom’s current income taxes are none or minimal because of her deductions. It’s not exactly the case that she’s not ‘contributing’ anything to society. She does have a stake in the 2030 economy….actually a higher stake than a 59 yr old single man whose earning $400K a year and paying a boatload of income taxes.
The tax credits for children and taking care of people who can’t care for themselves (i.e. elderly parents etc.) are partially responsible for this stat. that so many people ‘don’t pay’ income tax. But the complaint seems to miss the point. Maybe in the very short run Pentamom would pay more income tax into the system if she only had one child and worked part or full time. But then would that ‘contribution’ make up for the loss of two lifetimes of contributions that two of her kids will make to society in the future? Will Donald Trump make up for that by giving us more casinos if we followed Tom’s moral reasoning and tried to achieve more ‘fairness’ in taxes? Hmmmm…
David Nickol, my only point is that if the people who get 60% of the income are paying 74% of the taxes, it’s hard to argue that they are, *as a group,* paying *less than* their share.
I think there is a point you’re buying social insurance with a slightly progressive tax code. In the US you have the opportunity to really strike it rich. But there’s a net underneath you to catch you if things don’t go as great as you hope. I suspect this makes it more likely that you’ll strike it rich (or at least do well). Knowing you aren’t going to starve to death on the street takes a bit of the edge off of taking reasonable risks to make thing better.
IMO that’s worth paying a little more for since it enables you to have a system where you really can do very well for yourself.
April 16th, 2011 | 8:44 pm
Anyone who doesn’t think the debt is their problem will discover that it is. They might not be paying federal income taxes, but they are getting services. The services will stop. Then they will say, “Oh, I guess I should have cared. What can I blow up to show how mad I am now?”
April 16th, 2011 | 11:01 pm
And Boonton, FWIW, my name comes from the fact that I actually have five kids, total — but two of them have “aged out” of tax credits.
April 17th, 2011 | 8:52 am
Hats off penta! Five kids beat another Trump casino any day of the week.
I think the discussion about debt is always useful but people tend to confuse the nature of debt on a national level with that on the individual level. What we are able to do in 2030 depends on what we have in 2030 in terms of people and capital. Debt then is a bit like poker chips. They tell you how much of the pot each player gets to have but what counts more is how big the pot is.
On the individual level, though, debt does matter. If you pay down all your debts, amass a large savings, you as an individual will enjoy more in 2030 than someone who does the opposite.
April 17th, 2011 | 9:44 am
Pentamom,
When i moved out of my my parents’ home, they said that they would gain a room and lose a deduction. I think having me out of their hair made up for the loss of the deduction!
Mark Barrett,
Well-argued reply. Much clearer than the original posting.
April 17th, 2011 | 5:01 pm
JM, the child credits end at age 17 (the calendar year the kid turns 17) which has led my husband to ask, “Why do they cut off the credits just when the kids start getting really expensive?” :-)
But I’m not saying it’s unfair. They have to set the limit somewhere, and by age 17 kids can begin earning enough of their spending money to make up the difference, if that’s an issue for the family.
April 23rd, 2011 | 11:30 am
BTW, the chart here
http://krugman.blogs.nytimes.com/2011/04/22/zombie-tax-lies/
Tells the real story. Long story short, look at all taxes paid to all income. The top 1% of earners made something like 21% of all income, and paid something like, horror, 22% of all taxes.
In fact, its pretty amazing when only 50% of federal revenues are income tax based and when you look at the big picture we have lots of taxes that are not strictly income based (property, sales, tobacco, gas, etc.) that taxes fall almost exactly in line with income.
April 23rd, 2011 | 3:55 pm
The real story from Jack Krugman (a little too liberal) and CJT (Liberal public policy organization specializing in federal tax issues), I doubt it. Putting that aside, this discussion should really be about how best for the government to raise the funds it needs (lets leave the discussion on how much it needs for another day) in a fair and equitable manner. Why not replace the income, payroll and medicare taxes by a national sales tax (lets exclude necessities like food, medicine, basic clothing, etc). It would seem to me that this would be equitable since the well to do could choose to live a modest lifestyle to avoid paying excessive taxes. This way they can’t complain about the taxes they pay when they buy a BMW instead of a Chevy. It is their choice. I’m pretty sure they will still buy that BMW. No more income tax code to try to figure out – that would be nice. Aside from the fact this would give politician’s less leverage, I’m not sure I see why this wouldn’t be better than what we have today.
April 24th, 2011 | 9:42 am
I’m not sure why giving them absolutely nothing to complain about is the essence of what is ‘equitable’. Likewise if you’re going to exclude the spending that people have to do (food, clothing etc.) the tax rate on everything else is going to be very, very high. Taxes that are ‘easy to avoid’ for many people tend to be much higher than taxes that are not easy to avoid.
April 25th, 2011 | 8:08 am
Giving the well to do nothing to complain about is certainly not the essence of what constitutes equitable. What constitutes equitable is that it is their choice to live a wealthy life style and pay high taxes or to live a modest lifestyle and pay less taxes.
As to your point on the tax rate being high, so what? The total taxes collected will be no higher than today so we collectively are not paying any more, and hopefully the total taxes collected will be substantially reduced if government can get their spending in check. It will however make everyone painfully aware of how much government is actually costing them. I think that would be positive.
Given that something like 45% of taxpayers pay no income tax, can a national sales tax actually be easier to avoid? If you don’t like the idea of not taxing essentials, you could always have a two tiered or for that matter a multi-tiered tax rate so that essentials are not taxed so highly as to cause further hardship on those on the lower end of the earnings spectrum.
April 25th, 2011 | 11:17 am
Dublin
What constitutes equitable is that it is their choice to live a wealthy life style and pay high taxes or to live a modest lifestyle and pay less taxes.
Let me put forth this image. Consider a man who put $1,000 into some stock of some funny sounding company (say Apple) and then went off to Tibet to become a Buddhist monk and has spent the last 40 years living on a grain of rice per day, leaving his family’s lawyer with power of attorney to handle all financial decisions……. His manager handles today a billion dollars a year in income coming in and he pays massive taxes on that. What difference would it make to this hypothetical monk if those billions simply grew and grew without any taxes to worry about? If you make lots of income but have no particular desire to consume anything then the tax code as it now stands shouldn’t really be a problem of inequitity for you.
Given that something like 45% of taxpayers pay no income tax, can a national sales tax actually be easier to avoid?
Yea we been thru that already, non-smokers don’t pay tobacco taxes either. Look at my link again, total taxes from all sources lines up almost perfectly with income. Those who make 20% of all the income pay about 22% of all the tax or so. Moving to a national sales tax then basically ensures, then, that you’ll make the tax system regressive, causing those who have less income to pay relatively more in taxes than those with more. This is well trodded ground. Look up the history of the US after 1865 or so. Our tax system was basically a variation of the national sales tax, it was called the tariff and it was effectively a sales tax because you either paid the tax if you purchased manufactured goods from abroad OR if you brought domestic goods you still paid more since the tariff locked out competition. The rich loved it because at a certain level of income, you can grow you income faster than you can grow your consumption so even though technically a rich person with a frugal lifestyle paid less tax than a rich person with a Donald Trump/Paris Hilton lifestyle, it didn’t really matter to the extravagent person.
It will however make everyone painfully aware of how much government is actually costing them
Why? As you said you’re going to exclude everything you ‘need’ so the only stuff getting taxed will be ‘upper lifestyles’. I’d look forward to lots and lots of petty debates trying to get more and more consumption goods listed as ‘necessary’. Are boats a luxury good? Cars? Trucks? A day at Walt Disney World? What if you’re bringing your kid to Florida for a major operation and give her a day at Disney World before hand to boost her morale?
No IMO we’re better off with an income tax, even though some in the upper brackets will always complain about it. I don’t buy the Randian idea that high income equals some type of super-human superman to whom we owe an extra level of gratefullness.
April 25th, 2011 | 11:40 am
On a more fundamental level, I think you’re assuming that ‘flashy’ consumption is somehow imposing some type of cost on everyone else. Hence your ‘equitable’ solution is to base taxes on ‘flashy consumption’ rather than simply income. Is this really the case, though? Upon what are you basing this assumption?
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