More revenue should be raised from those at the top, not at the bottom

Progressives believe the highest-income households should contribute more revenue; conservatives counter that the bottom half of earners should be paying more. When pressed about the need for revenue and shared sacrifice, House Majority Leader Eric Cantor recently lamented that nearly half of Americans don’t pay federal income taxes. Texas Governor Rick Perry went further, decrying this result of the tax code an “injustice.” This is a misleading grievance demonstrating a misunderstanding of the tax code: more than four in five households pay federal taxes and the role of the income tax is to adequately fund government without pushing more families into poverty.

While 46 percent of Americans won’t pay federal income taxes this year, 82 percent of households will pay federal income taxes and/or social insurance payroll taxes—predominantly Social Security and Medicare contributions. Payroll taxes are a tax on earned income and cannot be ignored because they are both regressive and substantial. Lower-income households pay higher average social insurance tax rates than upper-income households and these taxes brought in $865 billion last budget year (40 percent of all revenue).

A recent Tax Policy Center report explains that the basic structure of the tax code accounts for half of the 46 percent of households owing no income tax, while tax expenditures (preferences and credits) eliminate remaining income tax liability for the other half. The income tax code intentionally spares subsistence levels of income from taxation, hence the standard deduction ($5,800 for single filers and $11,600 for married joint filers) and personal exemption ($3,700). Of the households made nontaxable by tax expenditures, 44 percent pay no income tax because of special tax treatment for the elderly and 30 percent pay no income tax because of credits for children and poor workers.

Of the narrow 18 percent of households paying neither income nor payroll taxes, 57 percent are elderly households and 38 percent are non-elderly households with less than $20,000 in income. There simply isn’t much income here for taxes to collect: the lowest earning 20 percent of households (earning under $20,500 in 2007 dollars) received only 4 percent of pre-tax income in 2007, compared with 19 percent captured by the top 1 percent of households (earning above $352,900).

Broadening the tax base so that substantially more tax filers pay income taxes would require reducing the personal exemption, standard deduction, extra standard deduction for the elderly, exclusion of some Social Security benefits from taxation, child tax credit, or earned income tax credit. (Alternatively, higher employment and more evenly shared income gains would raise the number of households paying income taxes).

Forcing a higher tax burden on those with little to live on is a twisted concept of shared sacrifice, particularly when poverty has climbed to a 17-year high and recent income losses have been most pronounced at the bottom of the earnings distribution (see Figure H in this EPI analysis). Tax policy should instead focus on where the income gains have been concentrated over the last three decades.

  • clarenceswinney

    Put Conservative Republicans in Total Control of your government
    Since 1980, they had control of the Executive for 20 years, the Senate for 18 years, the House for 12 years and a Total Control for 6 horrid years that decimated our Housing Industry and the World Financial Industry while increasing the transfer of Wealth and Income to the top few.

    In 1980, 1% owned 20% of total Financial Wealth and 43% in 2009
    In 1980, 1% took 10% of individual Income and 20% in 2009..
    In 1980-2009, the top 1% had a 281% increase in after tax income and the middle 20% had a 25% increase or below the rate of inflation for a cut in income.

    5% own 62% of Net Wealth
    80% own 15% 62/15
    20% own 93% of Financial Wealth
    80% own 7% 93/7
    25% get 67% of Individual Income
    70,000,000 get 13% 67/13
    That Score is 222/35

    That ratio is like distribution of $100 with 20 having $86 and 80 having $14
    or each of the 20 have $4.36 and each of the 80 have $0.17

    Inequality? What else can one call it? $4.36 to $0.17 is disgraceful and will end our Democracy
    Since 1980, it has been a deliberate policy implementations by conservative republicans
    who believe if you shift wealth upward it will increase the wealth of those below.
    Increase the wealth at the top will create huge numbers of jobs.
    2001-2009 had a huge increase in wealth and Income of the top 10%.
    The job creation was lowest since Hoover.
    Since 1980, the three conservative presidents created 99,000 net new jobs per month or just enough to cover new entries into the work force. They took over in 1981 when job creation had been 218,000 per month. Those three initiated our involvement in ten foreign conflicts in which tens of thousands of innocents were killed. They destroyed our Savings and Loan Industry; created a Monopoly in banking where today ten banks control 80% of the deposits in all 7600 banks; created a worldwide financial disaster by deregulating the Casino Derivative Of America; destroyed our housing industry by allowing the big banks to, willingly, finance junk loans to millions who could not afford them. They increased the Fannie-Freddie maximum amount they could pay for mortgages from $300,000 to $729,000.
    This allowed the banks to promote $500,000 plus mortgages for more profit on the securities they sold worldwide as triple A values. Profits were huge. Fraud was huge.

    The Congress and the White House are reluctant to indict their campaign fund sugar daddies on Wall Street. $$$$$$$$$$$$$$$$ BUYS $$$$$$$$$$$$ ANYONE
    clarence swinney mad mad mad mad at Inequality in America

  • Tensionrelieversart

    WE should inact a special annual 1% wealth tax on the all the assets of anyone whose net worth exceeds 25 million, because a progressive tax system solely based on income fails to take into account, how the rest of us have been subsidizing the balloning wealth of the very rich.

  • Tensionrelieversart

    One in five Americans owe more on their mortgage than their home is actually worth. Every effort to reboot the housing market to date has failed because it has not done the most essential thing: reduce the massive debt load carried by underwater homeowners. Writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America so desperately needs, only without added costs to taxpayers.”Pump over $70 billion per year back into communities– Save the average family over $500 per month on mortgage payment. This is one way to create 1 million jobs every year and solve the foreclosure and economic crisis once and for all.