Fairness in the Tax Code
http://thedianerehmshow.org/shows/2011-05-10/fairness-tax-code
Upper income taxpayers have been shouldering an increasingly larger share of the federal tax burden, and last week the Joint Committee on Taxation reported that 51% of Americans did not pay any federal income taxes in 2009, a fact that does not sit well with those already wary of deficit reducing plans that include tax hikes. Low wage earners, students, and the elderly are among the most likely to have no federal taxes due, but the 2009 figures are raising new questions about fairness in our federal tax system. Join us for a conversation about the federal tax burden.
Guests
John McKinnon
reporter, Wall Street Journal
Chris Edwards
Director, Tax Policy Studies, Cato Institute
Howard Gleckman
resident fellow and editor of TaxVox a fiscal policy blog,
Urban-Brookings Tax Policy Center
Program Highlights
Who Pays What in Federal Income Taxes
In 2009, slightly more than half of all Americans paid no federal income tax, which raises questions about fairness in the tax system. Who's carrying most of the burden?
The Wall Street Journal's John McKinnon reports that high-earning households are paying a growing share of federal taxes. "By one measure, it's gotten to 45.1 percent of the federal tax burden for the top 10 percent of earners, and these are folks making over about $175,000," McKinnon said.
There are many reasons why 51 percent of Americans don't pay income tax. Among them are retirees or low-income individuals and families who simply don't make enough money. But McKinnon says there are also a lot of people making up to as much as $50,000 per year who have no federal income tax liabilities - mainly because of various tax credits and deductions.
Tax Reform "Has nothing to do with the People at the Bottom
But Howard Gleckman, a resident fellow at the Urban-Brookings Tax Policy Center, says it's the wrong question to simply ask who does and does not pay federal income tax. "Another way to look at it is who gets the most benefit from all of the tax preferences that litter the tax code," Gleckman said. Viewed this way, it turns out that high-income people get far more benefit than poor people do, he says.
People at all income levels get tax benefits, but it's the people at the very top of the income tax bracket that get the most, for things like capital gains and dividends, Gleckman said.
Chris Edwards, director of the Cato Institute's Tax Policy Studies program, agreed that many of the current breaks in the tax code are geared towards people at the high end of the spectrum. "One way to think about tax reform is that tax reform really has nothing to do with the people at the bottom," Edwards said.
Taxes and the Deficit
"I think we need to start at the point where we all recognize we're going to need more tax revenue if we're going to deal with the deficit issue," Gleckman said. The question is, where should it come from? Gleckman suggests that one of the places to start is to scale back or eliminate some of the tax preferences currently in the code.
McKinnon added that the top 400 earners in the U.S. currently pay an average income tax rate of about 14 percent. "And that, I think, is maybe the big injustice at the upper end right now.
Comments
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Wowee DRShow! What a stacked panel. Now what shall it be, a flat tax,a sales tax, a value added tax or a regressive tax punishing the failure to succeed?
My gosh! With the myriad of ideas our there you seem to choose repeatedly from the same thin rolodex for your "experts." If the people are to be represented today it will be only by the callers you allow, or by Diane's polite scolds of extreme conservative excess and gloating.
Oh, and by the way; the voters who are too poor for income tax continue to pay for Entitlements that are threatened, for federal excise tax, gas taxes and other service charges. Not to mention the onerous taxation on the poor by corporations inadequately regulated and policed in the form of fraud and inflated prices as well as adulterated and inferior goods and faulty services. At the root of all this is the excess wealth produced by underpaid labor and accrued to the wealthiest half a percent of families.
Letting off the brakes to "reform" an already warped tax system in the midst of plutonomy can only result in more financial repression for the majority of poor working people, many of whom mistakenly think they are middle class or upwardly mobile as they amass unpayable personal debts.
If in the past a higher percentage of Americans paid Federal income tax then today, maybe it's because their income has increased less than inflation thus reducing their tax burden. So that effectively the gains in total US income have been redistributed to the top.
Yup, the right must always outnumber the left on any NPR show. We must be "fair and balanced" you know...
oops duplicate
Let's cut thru the right-wing propaganda and put this in perspective. It's fair for the wealthy to pay progressively more in income taxes for the following reasons:
1. The rest of us pay a larger share of our income for medical care (if we can afford it at all).
2. We also pay larger shares of our income for other essentials, like food and shelter.
3. We pay more for all other taxes - payroll, sales, etc. than the wealthy pay.
Please review the "big" picture, not just isolated stats.
jack
And, then there are the poor saps like those of us between $30 - 50 K per year, single with no children, who get killed by the tax code. We have no shelters for the income that we earn.
The very bottom and the top make out like bandits.
It is fascinating to me that the superrich can get away with somehow blaming the poor for their own increasing tax burden. The top 1% owns 40% of the wealth and earns 21% of the income, yet they currently pay only about 17% in federal income taxes.
Through hedge funds, creative accounting, lobbyied loopholes, Swiss bank accounts and other off-shore tax havens, the top 1% routinely hide hundreds of $billions in assets and income by means that are generally not available to the bottom 50%. As wealth is distributed to the wealthy, fewer and fewer Americans will earn enough money to meet the income tax minimum threshold.
When Wall Street causes a "credit crisis" the rich expect taxpayer bailouts to indemnify their risk. Shifting the burden of their financial malfeasance on the backs of the poor - the people who least had anything to do with it - is truly a political insult added to their economic injury.
What is unfair to the low income wage earner is that he's been paying Medicare and Social security from his paychecks (an additional 7% per month or so), that doesn't seem to be considered as part of his income tax paid, but it does get spent like federal revenue.
The last irritation is consistency. The right screams that Wisconsin and Florida teachers are vastly overpaid and their county contracts can be discarded by fiat, yet only a few months before, it vigorously defended the wealthy bankers who had "contracts" for their obscene pay, lavish perks and lucrative bonuses.
As a true middle-class earner who is single and childless, I grow very weary of how certain social segments of our society find the idea of a tax code that recognizes the concept of "law of diminshing returns" applying to the affluent is a travesty, but it's just fine when used to milk money from folks like me, relative to my peers with dependents...
I think that one should look at the % of people who paid income tax when it was first adopted in 1913. I think you'll find that the percentage paying tax now is much higher than when the income tax was originally adopted.
Also, if you want to complain about people not paying income tax, then you should do something about the medium income staying stagnant for more than a decuade, thus losing purchasing power at about 3% a year while the upper 10% has seen it's income go up much faster than inflation.
Maybe it is a naive idea but...what if we simply made an opt-in on paychecks where someone could choose to put in $20 per quarter that would go into an account set up to provide funding to reduce the deficit? (Along with other soultions being proposed now, not in place of, of course) I believe the debt situation bothers enough people that they would be willing to give extra as long as it was voluntary and not a governmental requirement.
Also, my family is a lower income family and we don't have to pay much, if any tax and I would be fine with paying a tax percentage that everone else is paying, that seems to be fair to me.
I think the government performs many important functions and support paying my fair share of taxes to support the government. However I do think it is wrong that the tax code is so complicated that I have to pay hundreds of dollars to an accountant to pay my taxes. Paying taxes should be no harder than a 1040 EZ.
There goes the threat to "move money offshore" by the wealthy, if they don't like the tax. How reprehensible! NO ONE has the right to break the law, if they don't agree with it. There are legal ways to change laws in a democracy.
These right-wing threats and excuses make me sick (and very, very angry).
jack
I agree with guest that said we need to quit micromanaging with the tax code. Let's have a progressive income tax, no deductions, NONE. This way if you earn it, you pay taxes on it, and by you I really mean GE, etc.
It will never happen as the accountants and tax lawyers, a huge industry, would be opposed to it. If I was required to pay, say 10%, I don't need H&R Block to find all the deductions.
Look, I don't like paying taxes anymore than anyone else, but I also understand that if I don't my government then becomes beholden to China and other foreign entities and not to the people of the United States. I need to pay for the services provided to me by my government and I do this through taxes.
It is outrageous to say that 51% pay no taxes. All of those people who are working pay FICA, including employer's share making a rate of 15.3%. Why is it that every discussion of expenditures includes Social Security, Medicare and Medicaid without any mention that these programs have dedicated income streams, while every discussion of revenues does not mention that working people pay these regressive taxes from dollar one?
I appreciate you covering the issue of taxes and tax fairness.
I would request, however, that Diane please clarify a comment she's made at least twice so far, stating that 51% of the population, mostly on the lower end of the income spectrum, pay no taxes at all.
What I believe she meant to convey is that this 51% pays no INCOME TAX. These people, if employed, are paying a significant portion of their income in payroll tax. The latter is quite regressive, as a large portion of the income of high-end earners is exempt.
Low income people also pay sales tax, excise taxes, property taxes, vehicle taxes, etc., so they certainly are not paying any taxes at all.
Thanks for clarifying this,
Mark Haim
Columbia, Missouri
Money begets money, for instance people whos net worth is above 100,000 are not required to carry certain insurance policies. The amount varies state by state, but the point is the rich are not required to pay for increasing insurance rates. That is a financial break that the regular person is not privy to. Please advise?
Mortgage interest tax deduction is a valuable, necessary benefit for the middle middle class.
The REAL rich have fungible asset investment which they will sell (take out of investments) to pay cash = ZERO mortgage, ZERO INTEREST!
It infuriates me that I pay so much income tax while so many not only do not pay any income tax, but also get significant government assistance (housing, food, cell phone...). I also get frustrated at the time wasted and cost of preparing and filing my tax returns. Scrap the entire personal and business code and make it significantly simpler.
Hello Diane and guests,
Can you tell me if the social security tax is included in the figures you are stating?
Also; many people work as independent contractors and havee to pay all of that tax by themselves. (employers pay 1/2 of that for employees...
Thank you,
Fred J. Hinderschied
Bedford heights, Ohio
Diane,
Does your panel have better examples than the Czech Republic for the use of flat tax. They are not exactly the largest country anywhere let alone Europe. Wouldn't Germany be a better example? They seem to have rich people too...
Joe Roberts
Orlando Fl
Isn't it kind of pointless to discuss "taking up the collection" without talking about what the levy is used for. One of the primary benefits the very wealthy get is empire and world hegemony. They are global investors eager for our military, our intelligence agencies, our state and commerce and energy departments to go out and assure a high return on their money. (A panelist introduced income sheltering by off-shoring, so this group is hardly patriotic.) We have here the major theme that a plutonomous oligarchy has a legitimate right to hold the general well-being (our very subsistence) hostage, and that they do so by threatening to take their wealth elsewhere. What they forget is the benefit I described above where state terrorism, intimidation and military force guarantee their success. The same thing applies domestically, since the USA today is only another labor pool to them. The general public provides infrastructure suiting corporate needs (Stadiums for billionaires, freebees for relocation, taxation exemptions and local industrial infrastructure, and so on) while neglecting generalized human need. What this amounts to is extortion upon the majority who perform the necessary work.
Saying that change is politically unlikely does not mean change is not warranted. If the voters were informed and empowered things would be very different. This is a sick show insisting debt peonage and wage slavery, and a falling standard of living for most is OK. I say cut "Glowball Economy" spending and let the taxpayer determine from a menu how their tax contribution will be used. I like paying taxes for Social Security and food stamps because that's all that's keeping my community livable. Otherwise, pure hell!
The Fairtax would renew the economy like no other tax system. The Cato Institute has lauded the fairtax, Study it at Fairtax.org.
My teenage son earned $5,250 in 2010. Albeit very small, he had a federal tax liability. Your guest's assertion that 51% of American houdeholds pay no tax is intuitively difficult to believe.
The discussion is missing a key point: When >50% of the people pay no taxes, they have no stake or interest in the system (or in government in general).
And it is hard to tax this group since most are barely making a living wage. Society would be better if this group made 10% more, and then paid 10% in tax to at least ensure their involvement in the system.
Of course this means paying them a living wage, something our system is reluctant to do.
Here's how to balance the budget forever, without taking away one more earned dollar from anyone:
Set a reasonable limit on the amount that can be willed to heirs. Say, for example, one year's worth of the median income. Everything else -everything- goes to the Treasury.
Tax net worth to replace tax on investment income.
More than once now, both of these guests have sidestepped the direct question: how does the tax burden paid by the top 10% compare their percentage of income generated? Sure, I heard, twice now, that their burdent is increasing, but what is their share, really, when viewed in relation with their earnings. It is not an answer to say that the top 10% do a lot for our economy!
The Oligarchy does alot "to" the economy, but not necessarily anything "for" it other than to make it bigger, and they keep the change.
Before we decide on a tax system, we as a nation need to decide what kind of country we want. Do we want to be producers or consumers? We as a nation have spent far too much time as consumers, resulting in massive debt and a dependence on countries like China to produce everything for us.
If we want to go in the direction of Germany and become producers, rather than consumers, then we need to shift our tax system from taxing income from those that are producing, to taxing the sale of goods (be it a VAT or sales tax) and discouraging so much consumption.
"Scoopry wrote:
My teenage son earned $5,250 in 2010. Albeit very small, he had a federal tax liability. Your guest's assertion that 51% of American houdeholds pay no tax is intuitively difficult to believe."
How much mortgage interest did he deduct? How many kids does he have? How much medical/insurance cost did he pay? How much of his income was from tax-free muni bonds? Did he get any combat pay exclusion? Education expense deduction?
Better teach that boy how to work the system or he'll stay stuck in the sucker 49% of the system. Either that or teach him to vote and fix the system.