Fairness in the 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.
reporter, Wall Street Journal
Director, Tax Policy Studies, Cato Institute
resident fellow and editor of TaxVox a fiscal policy blog,
Urban-Brookings Tax Policy Center
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.