Tuesday, April 15, 2008

On Tax Day: The Tax Debate We Need To Have

Here's a cold reality that none of the presidential candidates want to tell you: a shrinking number of Americans are bearing an ever bigger share of the nation's income tax burden. In 2005 (the most recent year for which data is available), the bottom 40% of Americans by income had, in the aggregate, an effective tax rate that's negative: their households received more money through the income tax system, largely from the earned income tax credit, than they paid.

That means that the number of people who actually pay America's income taxes - totaling almost $1 trillion in 2005 - is surprisingly small. Of those who filed returns (themselves a subset of the population), just half accounted for 97% of the Treasury's total income tax revenue (see chart above). The top half's share of total payments has been growing steadily for the past 20 years. The top 10% of taxpayers kicked in 70% of total income tax. And the famous top 1% paid almost 40% of all income tax, a proportion that has jumped dramatically since 1986.

Did Bush cut taxes for the rich? Yes. But he cut taxes for the poor even more. If we look at the measure that really matters - the change in effective tax rates - the bottom 50% got a much bigger tax cut than the top 1%. Did the dollar value of Bush's tax cuts go mostly to the wealthy? Absolutely. It could hardly be otherwise. Since the well-off pay the overwhelming majority of taxes, any tax cut with a prayer of influencing the economy would have to go mostly to them. You could completely eliminate income taxes for the bottom half of the population, and the Treasury would hardly notice.

The real issues here are clear. One is having a shrinking minority of citizens pay most of Washington's bills. Social cohesion falls apart. The majority who pay nothing resent those with higher incomes; the minority who pay heavily resent those who don't pay.

~Geoff Colvin, Fortune Senior Editor



At 4/15/2008 12:47 PM, Blogger Unknown said...

I read this and all I can think is how cheap it would be to just tell the bottom 50% of earners to stop filling tax returns.

At 4/15/2008 3:56 PM, Blogger K T Cat said...

Resentment isn't the worst part. The worst part is that for the majority, politicans can now effectively promise something for nothing.

At 4/15/2008 7:47 PM, Blogger Jim VAT said...

When 50% of the people are not "invested" - that is, have "skin in the game" - what kind of political system is possible?

My further comments are:


Shameless plug, but my pathetic blog could use some traffic.


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