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RDQ’s recent post about seniors paying taxes reminded me that presently only 53% of Americans pay federal income tax. Many of the remaining 47% are net recipients of money from the treasury. We all know that everyone working pays payroll taxes, but should everyone pay income tax?
On the Yea side, having all citizens paying income tax would give everyone “skin in the game” when it comes to voting on tax policy and expenditures. As it is, it is very easy to see why the 53% would ask why the 47% gets to vote on how much the 53% is taxed and where those funds go. If the percentages flip just a little more there will be more non-payors than payors, creating a potentially perverse situation.
On the Nea side, one must wonder if we’re asking for blood from a turnip? As it is, if the 47% are net zero or net takers and are barely making ends meet as it is, where does this tax money come from?
Fixing a one trillion dollar deficit would deplete the entire wealth of a thousand billionaires. In turn, fixing the current 36 trillion dollar national debt would deplete the entire wealth of 36,000 billionaires. (Not just their annual incomes.) We have about 850 billionaires in the United States. People just don’t comprehend the hole we are digging for ourselves. Even taking every cent of the money of the multi-billionaires isn’t going to come close to covering the deficit. We have to face the fact that taking bigger slices of what the wealthy (and near-wealthy) earn is simply not going to fix the problem, unless this country finds a way to spend less (and keep any budget line item increases well below inflation rates) and also generate more revenue – from more and higher real personal earnings – across the board for all, not just raising taxes.
I actually agree in principle that everyone should pay “something” for the rights and privileges of citizenship, but it won’t make a hoot of difference in our country’s financial reality, and the government would spend too much time trying to collect it. But it does make people think about where their money is being spent – or wasted. Perhaps we need a “symbolic” tax payment – an small but specifically-identified tax contribution deducted from a Medicare, Social Security, Medicaid or refundable tax credit payment.
And then let’s just pay attention to the math. Remember that old cartoon by Sydney Harris, of two men standing before a blackboard with a lot of math on the left and right, and a big blank space in the middle between the formulae? The caption: “And then a miracle occurs.” That’s where we are.
Hey, don’t forget there’s a whole lot of millionaires to take money from too! The top 1% has something like $50T of wealth (according to the Fed). That’s enough to cover the debt and give a little bonus to all the taxpayers 😉
“To whom much is given, much is required.” I support our nation’s progressive federal income tax system and am grateful that our family’s income and resulting payment of federal and state taxes help those less fortunate, as well as paying a larger share for national defense, regulating commerce, maintaining interstate highways, etc.
For those who confront illness or disease, or other unexpected setbacks in life (whether mental, emotional, physical, job loss, or whatever), I am happy to outsource my benevolence through a state or federal government means-tested programs which my taxes go to support. We are happy to do this as a household within the top 5% or 10% of income. My thinking is that households whose incomes exceed $500,000, $1 million, $10 million, or $100 million should be willing to pay a larger percentage share of their income bounty. The financial opportunities provided in our country, and the stability resulting from the rule of law supported by our federal and state governments, are big parts of these high earners’ success.
What I don’t support is those who are able to perform some type of gainful employment, but whether by flaws in the governmental program design or the recipient’s dishonesty, benefits are paid to some who really shouldn’t qualify (in my opinion at least). Those who can work, but choose not to, spoil it for those who really need help. Bad apples spoil the whole bunch.
When it comes to federal income taxes, our system has become incredibly more progressive. 47% of Americans do not pay income tax, in large part due to the standard deduction of $14,600 single, $29,200 married filing jointly. Others actually receive money from the income tax system due to a variety of credits.
But, most descriptive is the distribution of federal income taxes:
Top 10%, 15.3MM returns, average tax rate 21.5%
Top 50%, 76.8MM returns, average tax rate 16.2%
Bottom 50%, 76.8MM returns, average tax rate 3.3%
The percentage of income tax burden born by the top 10% is about 55% of the total. In 1980, that percentage was 32%. In 1960, it was substantially less.
I believe every American with income should share in financing the “enumerated powers” of our federal government – defense, border security, etc. Long past time to reduce the number of “free riders”.
Just want to point out a math issue
If it went from 32% to 55%, to make your bigger point, you’d also need to provide what percent of total income that group represents. If they’re now a much larger share of income, you’d expect them to be a larger share of taxation.
So we should…reduce/eliminate the standard deduction? Reduce or remove refundable credits? Or should we lower the income tax burden of high earners? I really do see your point of an unfair distribution of the tax burden, but how much can you squeeze out of the lowest earners? “Blood from a turnip,” as was said at the top of this post. And I won’t mention the ever-growing unequal distribution of income and wealth growth over those time periods…
I believe in a progressive tax system whereby people who make more pay a higher percentage. This is fair as wealthier people can afford to pay more. It should be a simple unstepped function that begins to plateau, but never really stops increasing.
There should not be myriad deductions. The tax formula should be simple. If the gov’t want to give child or tuition or soybean credits, then we should file simple requests and be given refunds.
My daughter and I had to spend over an hour researching how to fill in box 14 on her 2024 return. Questions like that shouldn’t be on tax filings.
We’re allowed to dream.
ok paying taxes, but as a self employed, sucked to pay double.
i was a house keeping, landscaper. my mileage was low and my write
offs were minimal. taking money under the table would have only made
it worse.
I recently spoke about taxes to a group of low income people through a court program. They uniformly had no idea why money was withheld from their paychecks (income tax, Social Security, Medicare, etc.) or what they could get back from the IRS by filing a return. It’s unbelievable that our tax system is so confusing to ordinary citizens about something as basic as how much they actual earn – and keep – from a day’s work.
confusing is one thing, willfully uninformed,
is something else. so much free help and guidance
out there.
Get rid of all payroll taxes, and replace it with a VAT. I know everyone will scream about high sales taxes affecting the lower class, but I have seen VAT ideas that offer a stipend/pre-fund to offset the tax on a certain amount of income.
it should all be be based on consumption, so simple, so, ”fair”.
Yes everyone getting benefits should have skin in the game, it’s too easy to justify money the other guys are paying for.
If we only look at income taxes this makes sense, but low earners also pay tons of other taxes, that are frequently regressive. Renters indirectly pay real estate taxes, sales taxes, etc, so it’s not quite correct to say they don’t pay taxes.
That said, it’s not clear that the govt won’t be broken by a populist approach. Plato wrote about it and we’re seeing that his insights held over millennia.
Right now the populist approach seems to be lower or no taxes and paying for all we want and need with fairy dust.
Populism is weird right now, we have Trump who promises one set of things and AOC/Sanders promising the diametric opposite.
I don’t think we can continue on this trajectory without some unexpected bad outcome. Eventually a rubber band stretched snaps.
i see A/S making promises with other’s money.
i believe in dereg and supply side.
I tend to think all populist proposals need deep scrutiny. They generally lean into untested ideas that run afoul when implemented.
You’ll have to back this kind of claim up with real evidence, I’m afraid. From I read this 47% number is a just a Romneyism from the late 2000s, and is terribly misleading because it takes no account of payroll or sales taxes, or state income taxes. Many of these people are likely seniors receiving SS income, and let’s not forget that the capital gains rate is 0% up to $45k, which might mean that many of these non-payers are in fact well-off investors living off investment income. Don’t forget, too, that over time significantly more of the wealth and income gains in this country have accrued to the top 20%, and so naturally they ought to be paying significantly more in taxes than those in the bottom 50%. I don’t begrudge those who play the system to their tax advantage, it’s what I do with my income as well. If someone wants to deliberately stay in range for the EITC or child tax credits, they have my blessing.
Ben’s statistics are correct. In fact the top 50% pay 97.7% of all federal tax collected. I suspect that state income tax collected would be similarly skewed towards the top 50%, assuming we’re talking about states that have an income tax. Income taxes are progressive while sales tax is not and thus imposes a greater financial burden on the bottom 50%. The EITC was designed as an incentive to encourage work, anyone who would limit their income just to collect this credit is doing themselves a grave disservice.
This is my opinion after many years of preparing taxes.
Those credits can add up to serious money for some young parents with kids. Here’s my thoughts after preparing taxes for many years. I have no problem with helping people in need. I also don’t like to get ripped off. Here are the stories of four of my prior clients that shape my opinion.
1. A single mom that immediately got pregnant when she learned that eligibility for the earned income credit increased to 3 children.
2. A single parent who stopped working at the precise income necessary for the maximum tax credit.
3. A young couple with four kids and received a substantial credit the first year they came to me. Both parents worked full-time all year long, their income rising every year, eventually making them ineligible for the refundable tax credits. Last time I did their taxes, their incomes were near $200K, making them payers of tax.
4. A new client walked into my office wearing a stocking cap, with her 3 kids in tow. Her prior year tax return put her income at $90K. Her current income was only $20K. Beneath her stocking cap was her bald head. She was a cancer survivor and the Earned Income Tax Credit quite literally helped her feed the kids.
Interesting examples Dan. No 1 amazes me – a child costs a heck of a lot more than an extra few $1000 from a larger EITC. No. 2 shows how some tax provisions with cliffs – or perceived cliffs – can disincentivize people from working. Some of these can be subtle and surprise. The one I see most often is with retirees who are surprised that more income pulls more of their SS benefit into the taxable side, and increases effective marginal rate of that additional dollar. I’m still seeing clients surprised that the increased interest rates of the past few years increase interest income, but usually with no withholding. It shows up as a smaller refund, or a tax due. Family No. 3 is the kind of example we all like to see – they would have earned their way out of a VITA program.
In the case of pregnant girl, the extra money was most likely used for a purpose other than raising the child. Number 2 is sad because the EITC is not reduced a dollar for a dollar earned; they would be money ahead if they kept working. Number 4 really appreciated the tax return and I was happy to process it for her. As for family #3, I was so proud of these guys, almost as if they were my own kids.
I totally agree that seniors are often shocked when extra income effects SS; very common this year due to interest rates.
extra income and ss: one reason i am happy as i enter retirement that my wants were always low, so my income was the same. i am taking a cash sale on my home and moving to raw land in the next year. ss will be ”extra cash” once the land and cabin is paid for. ”a simple life keeps life simple.”
I don’t recall ever in 60 years of voting getting to vote on tax policy or expenditures. Needless to say, those not paying are mostly, but not all in the lower income group.
I would not automatically consider them all or mostly barely making ends meet because you have factor in tax credits, exemptions and standard deduction before knowing their gross income.
You vote for the politician that forms tax policy or spending policy. The “needy” have been expanded to include many that have special interest groups pushing for federal funds to be distributed to their group. I want the people who have no ability to increase their income to get help, just don’t include those not inclined to increase their income.
spot on.
t.y.