Comment: Americans who say they pay taxes are probably lying
The Urban-Brookings Tax Policy Center recently released a report indicating that 61% of U.S. households had paid no federal income tax in 2020, up from 44% in 2019, as the pandemic resulted in high unemployment and loss of income. While the number will likely drop back to an average range of 40% over time, it’s probably a good time to discuss the right percentage of people who pay taxes.
But first, it’s always good to point out that even though about half of Americans don’t pay income taxes, almost everyone who has a job pays payroll taxes in the form of the 6.2% withheld on the first $ 142,800 of income. It is important to distinguish between income taxes and payroll taxes. From a philosophical point of view, social charges are intended to finance one’s own Social Security. Income taxes are intended to finance government spending, which increases every year. The burden of government funding falls on a smaller number of taxpayers. According to the Tax Policy Center, the richest 20% of taxpayers paid 78% of federal income tax in 2020, up from 68% in 2019.
How many people should be exempt from income tax? Most reasonable people would agree that this number is well below 61%. A household in the 61st income percentile earns just under $ 90,000 per year. Almost no one would consider a family income of $ 90,000 to be well off, but there is plenty of room to contribute. Consider that the median household income is $ 68,400, and that 2017 Bureau of Labor Statistics data shows that a typical household with a pre-tax income of $ 73,500 has over $ 6,000 in savings or more. $ 3,000 in entertainment expenses.
With the exception of the really needy, who I would call households earning less than $ 28,000 a year, we can all contribute. The idea that someone does not pay income tax offends us all, regardless of their wealth and income. They don’t have to pay the same amount in terms of percentage, but everyone should have a small financial interest by being a US citizen. This is called “having skin in the game”.
It has very little to do with income generation (although if the government was really interested in increasing income it would be easier do it with the middle class than with the rich). This is the principle that very little is asked of American citizens in terms of participation in civil society. There is no military conscription or compulsory service. Voting is not compulsory. All we should be asking is that we all do our part and contribute a little to the cost of running government. If people did, they might experience its size and reach differently. Think of it like contributions from homeowners associations – nobody likes to pay them, but we do.
From a political standpoint, it would be very difficult to get everyone with a household income over $ 28,000 to pay their fair share of taxes. It is political suicide to even suggest raising taxes for the poor or the middle class. And people have different ideas about fairness. Some think it’s unfair that the rich pay preferential rates on capital gains and dividends (we cut those taxes years ago, for good reason). I think it’s unfair that 61% of Americans don’t have to pay tax. Whether you think it’s fair or not probably depends on your position on the political spectrum.
World leaders are currently discussing the implementation of a 15% minimum corporate tax rate. Why not a minimum tax rate for individuals? It doesn’t have to be a lot – even 5 percent would do. When you have a financial interest in something, you tend to care more about what happens to it. A small contribution would make people care a lot more about how the money is spent in Washington, which would be a good thing.
The next time you hear someone tell you with great outrage that they are a taxpayer, remember that there is a 61% chance that they will lie.