Despite perceptions, the case is strong that taxes in America are distributed with remarkable evenness across income groups.
Families with up to $20,000 in cash income pay 26% of their economic income in federal, state and local taxes. Families earning between $75,000 and $200,000 pay 26% too. Those with cash incomes above $200,000 pay a modestly larger share of their income in taxes: 30%.
So, including the federal income tax and all other taxes beyond it as a package, the tax code overall is remarkably flat. There’s no need for a new tax if its purpose is to include the middle class more.
Tax reform for simplification and to raise tax visibility (so taxpayers can make informed choices), continues to be important.
Federal income tax receipts are by far the most progressive piece of federal revenues, and also highly visible.
So it is easy to assume that the rich bear a very heavy burden of the cost of government relative to the rest of the population. And they do in absolute terms, but less so as a percentage of their earnings.
First, MyGovSpending.com looks at the picture from a holistic viewpoint. So we combine federal, state and local revenues. Federal income taxes amount to just 25% of government revenues, so its impact on the progressivity of the entire tax code is diluted.
The next big tax is payroll tax at 20% of government revs. These are actually regressive, and undo much of the progressivity of the federal income tax.
Sales taxes are 9% of government revenues, and are notably regressive. The rich pay a smaller portion of their income in these taxes because the rich save more and consume less, relative to their incomes.
Then there are corporate income taxes, other levies on businesses, and property taxes, too. These foot to another 21% of the government’s cream.
Economists can quibble about who actually pays these. Economists we rely upon argue that 70% of the bulk of these taxes are paid by workers and 30% by stockholders. If one accepts that, these taxes have a regressive bent to them, too.
Then 10% government revenues are often thought of as “non-tax” revenues. These are proceeds from government-owned businesses, like the post office and lotteries. It also includes fines and fees of various kinds.
MyGovSpending.com forwards the argument that these revenue streams are owned by citizens as equal “shareholders” in government. To the extent these revenue streams are controlled by legislatures instead of retail level citizens, they qualify as taxes.
The rich DO bear federal income taxes disproportionately. By design.
Holistically however, American taxes are spread remarkably evenly across income groups. By accident.
Note, although this analysis indicates the tax code is much flatter than commonly assumed, that should not be taken to imply that the poor are unfairly fleeced. The next logical step, and one beyond the scope of this post, is to analyze who receives government spending.
See this excellent paper by Andrew Chamberlain and Gerald Prante of the Tax Foundation entitled Who Pays Taxes and Who Receives Government Spending for a look at that topic.
It is available at http://www.taxfoundation.org/publications/show/2282.html.