Ruth Marcus firstname.lastname@example.org
August 15, 2011
“We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”
— Texas Gov. Rick Perry, presidential candidacy announcement speech, Aug. 13
Really? Of all the ills in the world, of all the problems with the economy, all the difficulties with the tax code, this is the one that Rick Perry chooses to lament?
Perry’s statement conjures visions of America as Slacker Nation, where the overburdened wagon-pullers drag an increasingly heavy burden of freeloaders. His number is correct but, like other conservatives who have seized on the statistic, Perry draws from it a dangerously misleading lesson.
The nonpartisan Tax Policy Center estimates that 46.4 percent of households will pay no federal income tax in 2011. This is, for the most part, not because people have chosen to loaf. It’s because they are working but simply don’t earn enough to owe income taxes, based on the progressive structure of the tax code and provisions designed to help the working poor and lower-income seniors.
As the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.”
Does Perry truly see this as an “injustice”? Does he believe his “dismay” should be alleviated by raising the tax burden on these households?
Consider: Of those households that do not owe income taxes, about a third earn $10,000 a year and a slightly smaller share earn between $10,000 and $20,000. More than three-fourths earn $30,000 or less.
In addition, the notion that these households pay no taxes is flat-out wrong. They pay — leaving aside state and local sales, income and property taxes — federal gasoline and other excise taxes and, most significantly, payroll taxes on every dollar they earn. These taxes are regressive. Everyone pays the same share, regardless of income, so they hit the poor hardest, and they counterbalance the progressivity of the income tax code.
Indeed, factoring in payroll taxes alone, the Slacker Nation picture looks very different. Two-thirds of the households that pay no federal income tax still ante up for payroll taxes. Fewer than one in five — 18 percent of all households — pay neither income nor payroll taxes. Nearly all of these are elderly (10 percent) or have incomes below $20,000 (7 percent.)
Assuming that Perry isn’t worked up about Slacker Grandmas, the relevant “slacker share” — people who are supposedly comfortably ensconced on that wagon the rest of us are pulling — is in single digits rather than “nearly half.”
And, of course, they pay other taxes. An analysis by the Congressional Budget Office, taking into account all federal taxes, found that in 2007 even the poorest one-fifth of households, with average income (including government benefits) of $18,400, paid 4 percent of their income in federal taxes. By contrast, the middle fifth (average income $64,500) paid 14 percent of income and the top fifth (average income $264,700) 25 percent.
In short, the wealthy pay a greater share of their income in taxes — but the poor don’t, as Perry implies, pay nothing.
About those rich people: Perry seems to believe it is wrong to ask more of them. “‘Spreading the wealth’ punishes success while setting America on course for greater dependency on government,” he said.
Perry needn’t worry. In the past several decades the wealth hasn’t been spread so much as concentrated — at the top. The share of total income going to the top 1 percent of income earners more than doubled from 9 percent in 1970 to 23.5 percent in 2007. (The Great Recession has since narrowed the gap.)
And while, as noted above, the rich pay a greater proportion of their income in taxes, the share of total taxes paid by the richest Americans is commensurate with their share of national wealth.
Examining the total tax burden — state, federal and local — Citizens for Tax Justice calculated that the top 1 percent of households (average income, $1.3 million) earned 20.3 percent of income and paid 21.5 percent of taxes in 2010.
The tax code is studded with a costly bevy of deductions and preferences — mortgage interest, employer-sponsored health insurance, retirement savings — that benefit wealthier taxpayers over those with modest incomes. If Perry wants to go after injustice in the tax code, he’ll find ample targets. Failing to tax poor people enough isn’t among them.