On Tax Day, the pay­ers vs. the tak­ers

The Progress-Index - - OPINION -

Tax time is here again, but while al­most 100 per­cent of house­holds will be fil­ing their fed­eral taxes, only about 40 per­cent will ac­tu­ally pay any. Ac­cord­ing to the Con­gres­sional Bud­get Of­fice, 60 per­cent of U.S. house­holds ac­tu­ally re­ceive more money from the fed­eral govern­ment than they pay in all fed­eral taxes com­bined.

This sober­ing statis­tic draws a huge ques­tion mark over the oft-re­peated claim that the rich don’t “pay their fair share,” be­cause as it stands, the poor and mid­dle-class pay less than noth­ing when both taxes and trans­fers are con­sid­ered.

Trans­fers are the other side of the tax coin: money house­holds re­ceive from the govern­ment through pro­grams like the earned in­come tax credit, So­cial Se­cu­rity, in­come as­sis­tance and var­i­ous wel­fare sup­ports. They are, in ef­fect, neg­a­tive taxes by which the govern­ment hands peo­ple money in­stead of tak­ing it away.

Ig­nor­ing trans­fers, the bot­tom 20 per­cent of house­holds pay an av­er­age ef­fec­tive tax rate of around 5 per­cent, and mid­dle-in­come house­holds pay around 17 per­cent. The top 1 per­cent? They pay 34 per­cent af­ter their de­duc­tions, ex­emp­tions and write-offs. Even though the top 1 per­cent earn al­most 20 per­cent of all the in­come in the United States, they pay 40 per­cent of all fed­eral taxes.

But when we ac­count for trans­fers, the av­er­age house­hold among the poor­est 20 per­cent ac­tu­ally ex­pe­ri­ences a neg­a­tive fed­eral tax rate — re­ceiv­ing $9,600 in trans­fers while pay­ing only $800 in taxes, for a mi­nus 56 per­cent ef­fec­tive tax rate.

Even the av­er­age mid­dle­class house­hold re­ceives more back from the fed­eral govern­ment ($16,700) than it pays in taxes ($8,900). Ac­count­ing for both taxes and trans­fers, only 40 per­cent of house­holds are net pay­ers in the end, which is why ev­ery pro­posed tax cut is met with the charge that it is one more “tax cut for the rich.”

When only the rich­est 40 per­cent of house­holds are net pay­ers, by def­i­ni­tion, ev­ery tax cut is a tax cut for the rich.

None of this is news to the politi­cians who fid­dle end­lessly with the tax code. If they can con­vince vot­ers that the rich aren’t pay­ing their fair share, politi­cians are then in the clear to tweak the U.S. tax code. And tweak it they do, al­ways to­ward the same end: buy­ing votes. Politi­cians have made the tax code so pro­gres­sive that a near su­per-ma­jor­ity of Amer­i­cans ac­tu­ally ben­e­fit from in­creased tax­a­tion.

Politi­cians prom­ise all sorts of largesse in ex­change for votes.

Once elected, they ratchet up taxes on the 40 per­cent of net pay­ers and dole out ben­e­fits to the 60 per­cent of net re­ceivers.

This ex­plains why both ma­jor par­ties have be­come such fans of big govern­ment.

Big­ger govern­ment means more taxes. More taxes means more money to dole out to vot­ers in the form of one new pro­gram af­ter an­other. More hand­outs for vot­ers mean more votes for politi­cians who de­liver the hand­outs. And the govern­ment grows year over year, re­gard­less of which party finds it­self in power.

The real ques­tion that tax­pay­ers should be ask­ing this tax sea­son is a sim­ple one: What per­cent­age of the Amer­i­can pub­lic should be ex­empt from pay­ing any fed­eral tax at all? Be­cause any­one truly con­cerned about peo­ple pay­ing their fair share would likely not an­swer, “60 per­cent.”

James R. Har­ri­gan Antony Davies Hosts of weekly pod­cast “Words & Num­bers.”

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