JONATHAN CHAIT APRIL 22, 2011
In the United States, the very rich earn a large share of the income, and are taxed at slightly higher rates than the general population. Here's the picture of shares of income and shares of the total tax burden:
Now, conservatives think the main problem in American public policy is that this system takes too much from the rich. So they want to paint it as soaking the high earners and coddling workers at the bottom. Thus you will see the endlessly circulated right-wing talking point that nearly half of all Americans pay no income taxes. Here, for instance, are Veronique de Rugy and Jason Fichtner:
The top earning 1% of Americans (or 1.4 million returns) paid 38% of taxes while the Americans at the lower half of the income spectrum (or 70.0 million returns) paid 2.7% of total federal personal income taxes.
According to the Tax Policy Center, this tax season, an estimated 45% of tax units will pay no federal income taxes. In 2009, federal non-income taxpayers were distributed throughout the earnings spectrum, with 26.3% of tax returns reporting less than $10,000 paying no income tax, 29.1% of those making between $10,000 and $20,000 paying no income tax; the remaining 44.6% of Americans not paying income taxes were distributed throughout all cash income levels.
How do they arrive at such a stunning conclusion? By combining two tricks. First, they focus entirely on the federal income tax, because most people will not understand this constitutes just one portion of the overall tax system. I'll let David Leonhardt explain the game of Three Card Monty that's being played here:
The 47 percent number is not wrong. The stimulus programs of the last two years — the first one signed by President George W. Bush, the second and larger one by President Obama — have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability.
But the modifiers here — federal and income — are important. Income taxes aren’t the only kind of federal taxes that people pay. There are also payroll taxes and investment taxes, among others. And, of course, people pay state and local taxes, too.
Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47.
The reason is that poor families generally pay more in payroll taxes than they receive through benefits like the Earned Income Tax Credit. It’s not just poor families for whom the payroll tax is a big deal, either. About three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes.
Here's another way to put it. Americans pay different kinds of taxes to different entities. State and local taxes tend to be regressive. Payroll taxes, which fund Social Security and Medicare, are also regressive. To balance this out, we have a pretty progressive income tax. If you focus only on the income tax, it makes it look like the rich are getting screwed. But of course the income tax is just one element. And conservatives are working hard to make the tax code more regressive at every level of government.
The other trick is to describe the share of taxes paid by the rich in isolation. Wow, 1% paying 38% of the taxes! It sounds unfair. You intuitively think that 1% should be paying more like 1% of the taxes. But, of course, that number leaves out the proportion of the income earned by the rich. Indeed, as the rich earn a greater share of the income, their share of the tax burden rises as well. Conservatives in turn cite this fact to justify lower taxes on the rich.
It's pure propaganda, and what it lacks in quality it makes up in quantity. The right seems to have an unlimited number of talking heads, columnists, and pseudo-economists willing to peddle this nonsense.