Now that Congress has punted most of the tough fiscal questions down
the road for a couple months, we can be sure in the weeks ahead there
will be a lot of discussion about who pays how much in taxes, and what
Below is an excellent analysis of the distribution of the tax burden,
state, local and federal. It’s from September, but I just stumbled
across it. To Ezra Klein’s analysis I would add two points. First, the
federal income tax should be progressive because state and local taxes
are regressive. A significant part of federal revenue is distributed
to the states, where those revenues help offset the regressive state
and local taxes.
Second, low income people should pay taxes at a lower overall rate
because the first $10,000 or so of a person’s income is subsistence,
the bare minimum cost to provide that person with food, clothing and
shelter. Assessing income tax on that income could mean that the
government would gain a few hundred dollars in revenue, but the
low-income taxpayer would be forced into starvation or homelessness.
(This a good argument for increasing the personal exemptions from
Food for thought in the coming months.
*The one tax graph you really need to know*
Posted by Ezra Klein
on September 19, 2012
At the heart of the debate over “the 47 percent” is an awful abuse
of tax data.
This entire conversation is the result of a (largely successful)
effort to redefine the debate over taxes from “how much in taxes do
you pay” to “how much in federal income taxes do you pay?” This
is good framing if you want to cut taxes on the rich. It’s bad
framing if you want to have even a basic understanding of who pays how
much in taxes.
There’s a reason some would prefer that more limited conversation.
For most Americans, payroll and state and local taxes make up the
majority of their tax bill. The federal income tax, by contrast, is
our most progressive tax — it’s the tax we’ve designed to place
the heaviest burden on the rich while bypassing the poor. And we’ve
done that, again, because the working class is already paying a fairly
high tax bill through payroll and state and local taxes.
But most people don’t know very much about the tax code. And the
federal income tax is still our most famous tax. So when they hear
that half of Americans aren’t paying federal income taxes, they’re
outraged — even if they’re among the folks who have a net negative
tax burden! After all, they know they’re paying taxes, and there’s
no reason for normal human beings to assume that the taxes getting
taken out of their paycheck every week and some of the taxes they pay
at the end of the year aren’t classified as “federal income
Confining the discussion to the federal income tax plays another role,
too: It makes the tax code look much more progressive than it actually
Take someone who makes $4 million dollars a year and someone who makes
$40,000 a year. The person making $4 million dollars, assuming he’s
not doing some Romney-esque planning, is paying a 35 percent tax on
most of that money. The person making $40,000 is probably paying no
income tax at all. So that makes the system look really unfair to the
That’s the basic analysis of the 47 percent line. And it’s a basic
analysis that serves a purpose: It makes further tax cuts for the rich
sound more reasonable.
But what if we did the same thing for the payroll tax? Remember, the
payroll tax only applies to first $110,100 or so, our rich friends is
only paying payroll taxes on 2.7 percent of his income. The guy making
$40,000? He’s paying payroll taxes on every dollar of his income.
Now who’s not getting a fair shake?
Which is why, if you want to understand who’s paying what in taxes,
you don’t want to just look at federal income taxes, or federal
payroll taxes, or state sales taxes — you want to look at total
taxes. And, luckily, the tax analysis group Citizens for Tax Justice
keeps those numbers. So here is total taxes — which includes
corporate taxes, income taxes, payroll taxes, state sales taxes, and
more — paid by different income groups and broken into federal and
state and local burdens:
As you can see, the poorer you are, the more state and local taxes
bite into your income. As you get richer, those taxes recede, and
you’re mainly getting hit be federal taxes. So that’s another
lesson: When you omit state and local taxes from your analysis,
you’re omitting the taxes that hit lower-income taxpayers hardest.
But here is really the only tax graph you need: It’s total tax
burden by income group. And as you’ll see, every income group is
paying something, and the rich aren’t paying much more, as a
percentage of their incomes, then the middle class.
That’s really what the American tax system looks like: Not 47
percent paying nothing, but everybody paying something, and most
Americans paying between 25 percent and 30 percent of their income —
which is, by the way, a lot more the 13.9 percent Mitt Romney paid in
When politicians try to convince you that half of Americans aren’t
really paying taxes, it’s usually because the real data undermines
their preferred policies. For instance, you wouldn’t look at these
numbers and think tax cuts for the rich need to be a huge priority.
And that’s one reason people who want more tax cuts for the rich
don’t like to show you these numbers.
* Romney’s 13.9 percent rate only counts his federal taxes. He
hasn’t released his state and local returns for 2011, so we can’t
say how that would change his total tax rate. But given the state and
local averages for someone in his income group, it’s likely to
remain well below the 25-30 percent that is typical.