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August 02, 2011

Graph of the Day: Taxing the Poor

Benjamin Landy

However bad the debt ceiling deal may look to progressives, we can at least be relieved that the government has avoided default, for now. What was once the far right of the Republican Party, and is now its center, managed to rein in its most extreme elements, who were actively inviting default. At the end of the day, senior citizens will continue to collect their Social Security checks, and children on Medicaid will be able to see a doctor. Still, the drama of the past several weeks has revealed just how radical and polarized the debate over the economy has become, with many Republicans even suggesting that taxes aren’t high enough… on the poor.

It began last April, when House Majority Leader Eric Cantor (R-VA) was asked about the debt ceiling on CNBC. Redirecting attention from the question of whether taxes should be raised on the rich, Cantor interjected, “we also have a situation in this country where you’re nearing 50 percent of people who don’t even pay income taxes.” The talking point was quickly picked up by Cantor’s colleagues, and broadcast throughout conservative media. “The place where you’ve got to get revenues has to come from the middle class,” Senator Orrin Hatch (R-UT) told MSNBC. “[We have] to make sure that there’s a civic duty on the part of every one of us to help this government to, uh, to be better.” And Senator Dan Coats (R-IN) reiterated the talking point just last week, arguing that “everyone needs to have some skin the game… we all have a stake in this country and what needs to be done. I think it’s important that this burden not just fall on 50 percent of the people but falls on all of us in some form.” 

This statistic, while not technically wrong, is purposefully misleading -- based on a selective definition of taxes that excludes about three fifths of all revenues. While it is true that 51 percent of tax filers do not make enough money to qualify for even the lowest income tax bracket, they are still subject to payroll, state, local, and sales taxes.

Effective Federal Tax Rates by Income Percentile Source: Congressional Budget Office, 2005                   

Payroll taxes, which are deductions for Social Security, Medicare and unemployment insurance, are mostly paid by the bottom 90 percent of earners; about 75 percent of all American households actually pay more in payroll taxes than in income taxes.  And although around a quarter of Americans pay no taxes at all, they are mostly students, the elderly, or the unemployed.

Federal Receipts by SourceSource: Office of Management and Budget                   

As the above graph shows, employment taxes have been growing as a proportion of total US revenues for at least the last fifty years, and will soon eclipse income taxes if the current trend continues. Corporate taxes have also fallen dramatically as a percentage of revenues, from a high of 32 percent in 1952 to just 6.6 percent in 2009.

Throughout the debt ceiling crisis, Republicans have employed the “51 percent of Americans pay no taxes” meme to shift blame towards the poor and middle class, at a time when populist anger might have been directed against the wealthy. The truth is that when payroll taxes are factored in atop federal and local income taxes, the effective tax rate for people earning over $370,000 a year is nearly identical to those middle class households earning between $43,000 and $69,000. America's richest citizens, despite Republican protestations, are paying far less of their share than they were a generation ago, leaving the United States with one of the greatest income gaps in the developed world.


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I think it’s important that this burden not just fall on 50 percent of the people but falls on all of us in some form.”



State & local income taxes ans sales taxes do not support the operations of the federal government.

Payroll withholding for Social Security/unemployment also does not support the operations of the federal government.

The latter are contributions to a retirement trust fund (much raided by Congress).

So,... yeah, half the country does NOT pay for the federal programs they benefit from.

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