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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Perhaps this topic has been discussed. Payroll tax rates are higher for single persons. Why should any part of the tax code incentivize choices to marry or have children, but especially the rates withheld on earned wages?
The guests today seem to have no problem justifying high-earner tax breaks. How about the reverse argument- by taxing high earners more, they have to work even harder to achieve their personal goals (and yes, they still have goals). No one wants to pay taxes, but it is a civic duty that high earners especially benefit from in more ways than they realize.
I don't expect any sympathy but is it fair that my wife and I paid $750,000 in federal income taxes in 2008? We took a lot of risks, and a lot of hard work to build our business, employing many people along the way. Last year because we had no extraordinary income we paid ONLY $250,000.
Here are some stats people should be aware of. The Institute on Taxation and Economic Policy analyzed what people pay in 2008 and found that the middle 20% of Americans earned 11% of total income and paid 9% of taxes. However, the top 1% earned 22.4% of total income yet paid 23.6% of taxes. (The above includes federal income and payroll taxes.) How is this even remotely progressive?
Would you have your guest define who that 51% actually are. That number comes from within a set group of income earners, the Middle class and above. Everyone pays regressive taxes.
You should really compare apples to apples here with respect to tax comparisons worldwide.. We do pay taxes here inthe form of health care, ss, 401k, child care college asnd so on. In Europe, these are paid by taxes. Seems to me that we pay far more in taxes than europeans especially in the middle class.
Tax individuals and business the same. Tax the profits. Individuals could write off all expences associated with living. There wouldhave to be demoraphic formulas. The wealthy wouldpay more but they benifit more from our infrastucture.The middle and poor would just put the money back into the economy and stimulate it as opposed to hoarding it and investing in the stock market or Buying second forien homes
Diane, thank you for airing the subject on fairness in the tax code.
The guests seem to be intent on comparing income to the tax code, whereas, the focus should be on comparing "wealth" to the tax code. In doing so one could easily see how those with the greatest share of the nations wealth pay proportionately less than others.
There are many references now speaking to the great diverenge of wealth that has been occuring in the last 30 years. "The Great Divergence"
By Timothy Noah Part One: Introducing the Great Divergence, hjighlights this problem. Below is just a short excerpt from his article.
Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the "Great Divergence." It's generally understood that we live in a time of growing income inequality, but "the ordinary person is not really aware of how big it is," Krugman told me. During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth—the "seven fat years" and the " long boom." Yet from 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent. Economic growth was
more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.
Again, thank you for your show.
Paul B.
What about the home mortgage deduction - a tax subsidy for the middle-class, and the untaxed medical premiums employers pay that most middle-class people receive?
jack
Diane, this is a very interesting discussion. I do question the choice of three guests from conservative institutions for the discussion. The Wall Street Journal, the Cato Institute, and the Brooking Institution are all conservative organiztions. Can such a combination really provide a fair assessment of the tax situation in America?
Would one of your guests please explain why a straight consumer tax would not work? The concept of simplifying the tax process with a consumer tax wherein all the tax revenues are collected through an existing system of “sales tax” is intriguing to me. Couldn’t those people who are already on state assistance be exempt from the tax on certain necessary items with a pin number to be used right at the register with the rest of the population paying their percentage of consumption?
Advantages would be that revenues are always collected via a steady stream of revenue, and the richer folks who can afford to buy yachts etc would still be providing the largest portion of the tax stream.
Thanks. I love your show.
Lynn Ellis
Williamsburg, VA
The US budget debate is clouded and shrouded with deceit because neither party will to "do the right thing" when it's time to fund the next campaign, for fear of losing donors. Unfortunately, it is ALWAYS time to fund the next campaign. Rich individuals and corporations have an unfair influence over tax policy. It doesn't matter what policies the President or any member of Congress campaigns on, the tax policies enacted usually favor those who give the money more than those who give the votes. Perhaps the "income tax" should also be applied to all the "stock perks" and other corporate reward mechanisms which allow a typical "Wall Streeter" to evade taxation on millions of dollars of "net worth increase". Somehow, we need to get "back to basics" in our tax system. The current tax code is an elaborate fraud perpetrated by those who can pay for it, i.e., those who give money to our politicians.
Diane,
I work as an IT Architect and have lived in Sweden for the past 18 years. I can say that based on my house, salary and career that I am considered upper middle class and pay about 38% income tax. We also pay 25% Value added tax on many purchases. With all this tax you might think I have less money in my pocket. NOT TRUE! I am actually wealthier and have more disposable income than when I lived and worked in California. Sweden has managed to help upper wage earners through a more fairer system. We also have free university education system for all and a national health care system that works!
50% of people pay no taxes - what is the percentage of corporations that pay no taxes - and how many billions of dollars dollars are the corporations earning and not paying taxes on?
We have seen for years corporations like GE, Mobile, Exxon touting how many billions of profits they have earned and pay 0 taxes - in fact they get money back.
So, we must lower corporate taxes - How can you lower nothing to less than nothing?
Where are the voices of moderation? Why is it that the program has individuals who are not advocating taxing the corporation and high income earners. Most of the wealth is in
the top 5 % and your panel avoids the elephant in the room.
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."
When your son is no longer considered your dependent, he can receive a long list of exemptions and credits that he's currently not eligible for.
There is a big difference between two income couple with a mortage and children to raise and put through college in the 25 % and multi millionaires in the 1 % wealth. this show is upsetting me very much and I am ashamed of you Diane. It is an unbalanced show. It seems I am listening to a Fox show! The American public needs to get educated and fast but unfortunately it is probably too late. The problem is at the 1 % of the population. They are the ones that have been having a party for 30 years. By the way 98 % of the Americans are working class not middle class. An illness or loss of inclome would put them in the poor house withoiut a safety net in this country. This country has become poorer in poorer for most that is why half the households don't pay tax. Free goodies?????
We are hearing non-specific terms about the amounts of taxes. We could all understand how fair the proposals are if numbers were used.
What is the actual number or percentage of wealthy who pay little or no taxes and what breaks do they actually get?
How much of income taxes actually come from the middle class?
What is the breakdown of the reasons for the numbers of people who pay no taxes?
If we all paid the same rate and there were NO LOOPHOLES except that the lowest wage earners and the disabled did not pay, we would have none of the manipulation and power of lobbyists and the system would be fair.
Why do corporations pay taxes? Don't we all benefit from their existance? If we just tax the actual income that people get from corporations wouldn't it encourage businesses to invest more to employ more people and pay them more? Then individuals would have more income out of which more taxes would come without raising taxes.
I never hear the experts discuss the "cash ecomony" and how it effects the tax rates. I beleive this cash economy is growing and flys under the radar of both state and federal tax collections. The Flat tax idea would only increase the cash economy.
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).
I think you're on to something with the "livable wage", but I would suggest people are not civically empowered because the political parties serve the interests of their corporate donors and industry lobbyists, not the citizens.
Legal fictions such as corporations are being granted the constitutional rights of natural persons, while the rights of citizen erode.
In fact, the Florida Legislature just opened up corporate express lanes at the capitol for quid pro quo laws. They call it "leadership funds". Our governorship went to the highest bidder, a representative from Koch Industries.
I wish I was kidding.
Agreeing with you, the fact that the bottom 51% pays so much less income tax is a chronic reminder of their economic and hence political insignificance.
However, I suggest the primary cause of citizens being shut out of the political process is that they are being deliberately misinformed, their will is ignored and Florida laws are making it harder for them to participate.
Gee, maybe the rich pay an ever-increasing share of the income tax burden in part because they know tax cuts whose percentages favor the less well off are easier to sell, even though they don't really do much for the poor and the working class.
Such tax cuts, while decreasing income taxes for lower income workers by a higher percentage than for wealthy earners, give the lion's share of the tax cut to the rich, because the income tax is so slanted toward the rich (who "earn" so much more than everyone else). For example, if Richie Rich pays 30% on $10,000,000 of taxable income, and Paulie Poor pays 15% on $1000, a cut to 28% for Richie is going to give him a windfall of $200,000, while a concurrent reduction to 10% for Paulie will give him $50. Of course, Paulie could easily lose more than $50 in gov't services with the tax cut, when the right wing crows that we can't afford them anymore.
Furthermore, when we look at all taxes, across all levels of gov't, we essentially have a flat tax.
Finally, the bottom line is that the rich keep getting richer while everyone else gets poorer (and they're getting poorer faster than is being acknowledged - per shadowstats.com, the BLS is understating the CPI by close to 3 full points per year, thanks to gimmicks like "hedonics" and "geometric weighting" instituted in the 1990s). Given this fact, how unfair to the rich can the income tax system be?
GE paid no income tax and yet created far more jobs overseas than in the US. Could you provide an example of a company that created single job because the tax rate was lower? In fact, corporations deduct the cost of labor and equipment and depreciation allowances effectively put the cost of corporate hiring and development on the taxpayer anyway. I would love to hear of a verifiable example (verifiable by a mainstream outlet and not from Andrew Brietbart or Fox) of one example because there are numerous examples to contradict your assertion.
Time for an immediate NPR moratorium on using think tanks as a source of “expert” opinion!!! Those on the right are part of a very well financed idea factory designed to serve the conservative cause, and influence mainstream opinion by masquerading as disinterested and scholarly institutions when they are nothing of the kind. Their research cannot be trusted; it is peer-reviewed only to the extent of verifying that its conclusions fall into line with the ideology of their benefactors.
I missed much of the show. Did anyone mention the 15% income tax cap on capital gains and dividends? This exalts unearned income and devalues work, and naturally favors those who make their money by moving around other people’s money. This tax favoritism very deliberately pokes a stick in the eye of people, blue or white collar, who earn their money by actually working for a living. How perverse.
Diane is supposed to an impartial moderator, however, she seems to be entering the discussion with the premise that the so-called "rich" aren't paying enough of their fair share of the federal income tax burden. Guest panelists, don't confuse her with the facts. Also, there's a general tendency amongst the "class-envy crowd" to lump successful people making $251,000 a year into the same tax-owing group as Bill Gates and Warren Buffett. A flat tax with limited or no deductions is the only answer to "fairness" for all. Everyone - rich and poor alike - should pay the same percentage of their income in federal taxes. The progressive income tax is inherently unfair - unfair to the successful.
Social Security pension benefits are strongly progressive, and they are an investment in the person's own old age benefits.
In the most real measure, lowest income beneficiaries will recover THEIR contributions to the system in about 3 years while the highest income participants will have to receive benefits for no less than 6 years AND those higher income folks will pay income tax on 85% of their benefits where the lowest income will pay little - if any - income tax on their benefits.
In short, lower income folks get much more than twice the value for each dollar they contribute than the higher income folks.
We are selfish and feel a lack of group responsibility. The wage distribution ration is way out of scale. 1965 may have been the peak of the US Empire - wealth was distributed differently and we were also taxed differently. BUT, we were all better off. The Fortune 500 CEO's were making 40-50 times the avg work salary in their companies. Today it seems to be 400-600 times. Say no more. Pay it forward. Share the wealth. Why hasn't there been a shareholder revolt or at least a class action lawsuit. When these same over paid CEO's and there other top dogs are over paid it effects the well being of the company - in many ways. The market for top dogs doesn't really demand this kind of over-compensation.
'Brimstone' makes a good point about inheritance. Fair tax sounds nice but the big difference between people is the environment in which they are born and grow up, before they earn a cent, and that is an almost priceless factor. 'Fair tax' is not really fair if that is not addressed. The reason that taxes are so skewed right now is to compensate for that. Tax deductions are a common way conduct welfare programs by governments throughout the world. I don't think there is much to gain by doing it differently.
It seems like people who argue for a flat tax are always those who 1) earn a pretty good salary themselves, and 2) don't realize the advantage they had as kids, compared to say, someone growing up in the projects.
iI am certainly not an "upper income" taxpayer and rely on a very modest pension for my retirement income. in spite of this, I pay more than a quarter of my gross income in taxes. I know a number of "upper income" people who pay substantially less in taxes than I do -- are these stats valid?
I am looking forward to listening to your
show this afternoon.
The comments of these panelists made me very angry. They all focused on individual "fairness" and completely ignored what is fair for us as a country, as a civilized society. They assumed that everybody is purely focused on their personal household balance sheet, ignoring the broader effects on society of paying taxes or avoiding doing so. They assumed that finagling the tax code is unavoidable; the only question is how it should be finagled, to benefit which individuals.
When the question of "fairness" arises, I believe our national conversation needs to shift focus and encourage more reflection on what kind of a society we want to be. For example, I have no children, yet a significant percentage of all the taxes I pay go toward education, subsidized school lunches, children's health care, and other resources that benefit families with children. Do I mind? No, because I want to live in a society where children have a access to a decent education, decent nutrition, health care, and the like. I don't want to live in a 3rd-world country where the have-nots are miserable and desperate -- yet I see the U.S. moving in that direction and am horrified. Your guests today contributed to my sense of horror.