The re-emerging right-wing myth that low-income Americans aren't paying their "fair share" in taxes relies on flawed data: a report from the Heritage Foundation highlighting the fact that nearly half of Americans pay no federal income tax. In fact, while nearly half of Americans pay little to no federal income tax, nearly three-quarters pay other federal taxes, and nearly all pay state and local taxes; Americans who pay neither income nor payroll taxes are seniors, students, people with disabilities, and others who are not part of the working population.
Conservative Media Hype Income Tax Number In A Call For "Fairness"
Fox's Jim Angle: "For Half Of The Working Population, 'Fair' Means Almost No Income Taxes At All." In a segment examining "fairness" in the tax code, Fox News chief Washington correspondent Jim Angle pointed to the fact that half of Americans pay little to no federal income taxes to criticize President Obama's call that the wealthy pay their fair share in taxes, saying that it "doesn't entirely fit with the call for fairness from the president and his aides." He added: "When the president talks about fairness, he's arguing the wealthy should pay more, not that everyone should pay something." [Fox News, Happening Now, 2/20/12]
Fox's Bret Baier: "Like Beauty, Fairness In Taxes Appears To Be Largely In The Eye Of The Beholder." Introducing a segment by Angle on Fox News' Special Report, anchor Bret Baier asked viewers whether they pay their "fair share" and said that "like beauty, fairness in taxes appears to be largely in the eye of the beholder." Angle went on to say that "the president's idea of fairness is that the wealthy should be more, not that everyone should pay something." [Fox News, Special Report, 2/20/12]
Fox Nation: "Percentage Of Americans Who Pay No Income Tax Hits 49.5..." In a post highlighting the Foundry's blog, the Fox Nation website linked to the post using the headline: "Percentage Of Americans Who Pay No Income Tax Hits 49.5...":
[Fox Nation, 2/22/12]
Big Government: "No Wonder Obama Is Being Called The 'Food Stamp President.'" In a post bearing the headline, "49.5% of Americans Pay No Federal Income Tax, Can Obama Get that Number to 51% by November?" that trumpeted Heritage's report, Andrew Breitbart's Big Government website blamed the increase on President Obama:
Under Barack Obama, the number of people not paying federal income taxes in America has officially hit 49.5%. That means almost half of America, or 151.7 million Americans, are enjoying privileges or living off benefits the other 50.5% pay for. What kind of benefits am I talking about? Almost every kind you think about.[...]No wonder Obama is being called the "food stamp president." [Big Government, 2/21/12]
Drudge Report: "Percentage Of Americans Who Pay No Tax Hits 49.5..." The Drudge Report linked to the Foundry's post with the headline: "Percentage of Americans who pay no tax hits 49.5...":
[Drudge Report, 2/22/12]
In Fact, "No One Lives Tax-Free In America"
CBPP: Income Tax Number "Greatly Overstates The Share Of Households That Do Not Pay Any Federal Taxes." The Center on Budget and Policy Priorities wrote that the fact that nearly half of Americans don't pay any federal income tax "ignores the substantial amounts of other federal taxes -- especially the payroll tax -- that many of these households pay." CBPP continued: "As a result, it greatly overstates the share of households that do not pay any federal taxes. Data from the Urban Institute-Brookings Tax Policy Center show only about 14 percent of households paid neither federal income tax nor payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year." [Center on Budget and Policy Priorities, 5/31/11]
CBPP: "86 Percent Of Working Households Pay More In Payroll Taxes Than In Federal Income Taxes." CBPP reported:
The reality is that the income tax is one of a number of types of taxes that individuals pay, both over the course of their lifetimes and in a given year, and it makes little sense to treat it as though it were the only one that matters. Some 86 percent of working households pay more in payroll taxes than in federal income taxes. In fact, low- and moderate-income people pay a much larger share of their incomes in federal payroll taxes than high-income people do: taxpayers in the bottom 20 percent of the income scale paid an average of 8.8 percent of their incomes in payroll taxes in 2007, compared to just 1.6 percent for taxpayers in the top 1 percent of the income distribution.
[Center on Budget and Policy Priorities, 5/31/11]
CBPP: "The Poorest Fifth Of Households As A Group Paid An Average Of 4 Percent Of Their Incomes In Federal Taxes In 2007." CBPP reported that "low-income households as a whole do, in fact, pay federal taxes," writing:
- Congressional Budget Office data show that the poorest fifth of households as a group paid an average of 4 percent of their incomes in federal taxes in 2007 (the latest year for which these data are available), not an insignificant amount given how modest these households' incomes are -- the poorest fifth of households had average income of $18,400 in 2007.  The next-to-the bottom fifth -- those with incomes between $20,500 and $34,300 in 2007 -- paid an average of 10 percent of their incomes in federal taxes.
- Even these figures understate low-income households' total tax burden, because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2010.
- When all federal, state, and local taxes are taken into account, the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010. The second-poorest fifth paid 20.7 percent. [Center on Budget and Policy Priorities, 5/31/11]
Journalist David Cay Johnston: "When It Comes To State And Local Taxes, The Poor Bear A Heavier Burden Than The Rich In Every State Except Vermont." In an article outlining "a few points about taxes and the economy that you may not know," Reuters columnist David Cay Johnston, a former New York Times reporter who won the Pulitzer Prize for his reporting on the tax code, wrote:
Data from the Tax Foundation show that in 2008, the average income for the bottom half of taxpayers was $15,300.This year the first $9,350 of income is exempt from taxes for singles and $18,700 for married couples, just slightly more than in 2008. That means millions of the poor do not make enough to owe income taxes.But they still pay plenty of other taxes, including federal payroll taxes. Between gas taxes, sales taxes, utility taxes and other taxes, no one lives tax-free in America.When it comes to state and local taxes, the poor bear a heavier burden than the rich in every state except Vermont, the Institute on Taxation and Economic Policy calculated from official data. In Alabama, for example, the burden on the poor is more than twice that of the top 1 percent. The one-fifth of Alabama families making less than $13,000 pay almost 11 percent of their income in state and local taxes, compared with less than 4 percent for those who make $229,000 or more. [Willamette Week, 4/13/11]
Johnston: Payroll Taxes "Are Paid Mostly By The Bottom 90 Percent Of Wage Earners." In his article on taxes and the economy, Johnston wrote:
Social Security, Medicare and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That's because, once you reach $106,800 of income, you pay no more for Social Security, though the much smaller Medicare tax applies to all wages. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800. [Willamette Week, 4/13/11]
CBPP: "Lower-Income Households Pay A Significantly Larger Share Of Their Incomes In Federal Excise Taxes" Than Do More Affluent Households. In a report on the taxes that low-income Americans pay, CBPP wrote:
The reality is that the income tax is one of a number of types of taxes that individuals pay, both over the course of their lifetimes and in a given year, and it makes little sense to treat it as though it were the only one that matters. Some 86 percent of working households pay more in payroll taxes than in federal income taxes. In fact, low- and moderate-income people pay a much larger share of their incomes in federal payroll taxes than high-income people do: taxpayers in the bottom 20 percent of the income scale paid an average of 8.8 percent of their incomes in payroll taxes in 2007, compared to just 1.6 percent for taxpayers in the top 1 percent of the income distribution.In addition, Congressional Budget Office data show that lower-income households pay a significantly larger share of their incomes in federal excise taxes (levied on goods such as gasoline) than middle- and upper-income households do.When all federal taxes are considered, it is clear that the overwhelming majority of Americans pay such taxes. [Center on Budget and Policy Priorities, 5/31/11]
For the truth about taxes, click here
And Taxes On Top Earners Are At Historic Lows ...
CBPP: "The Effective Federal Income Tax Rate For The 400 Taxpayers With The Very Highest Incomes Has Declined By Nearly Half Over The Past Two Decades." A February 23, 2010, report by the Center on Budget and Policy Priorities (CBPP) found:
The effective federal income tax rate for the 400 taxpayers with the very highest incomes has declined by nearly half over the past two decades, even as their pre-tax incomes have grown five times larger, new IRS data show.The top 400 households paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995. This decline works out to a tax cut of $46 million per filer in 2007, or a total of $18 billion in tax cuts for these households per year. [Center on Budget and Policy Priorities, 2/23/10]
CBPP: "Typical Middle-Class Households Face Higher Tax Rates Than Some High-Income Households." A September 20 post on the CBPP blog, Off the Charts, showed that households with an annual income of over $1 million that earn over two-thirds of their income from investments paid a lower tax rate in 2011 than most middle-income families:
[Center on Budget and Policy Priorities, Off the Charts, 9/20/11]
Congressional Research Service: "About 25 Percent Of Millionaires In The U.S. Pay Federal Taxes At Lower Effective Rates Than A Significant Portion Of Middle-Income Taxpayers." An October 12 Bloomberg article on the recent Congressional Research Service report, "Analysis of the Buffet Rule," noted:
About 25 percent of millionaires in the U.S. pay federal taxes at lower effective rates than a significant portion of middle-income taxpayers, according to a legislative analysis.Preferential treatment of investment income and the reduced impact of payroll taxes on high earners lets about 94,500 millionaires pay taxes at a lower rate than 10.4 million "moderate-income taxpayers," representing about 10 percent of those making less than $100,000 a year, according to the report by the non-partisan Congressional Research Service dated Oct. 7.The findings put the U.S. tax system in conflict with the so-called Buffett Rule, which says households making more than $1 million annually shouldn't pay a smaller share of their income in taxes than middle class families, says the report, which analyzed 2006 Internal Revenue Service data. [Bloomberg, 10/12/11; Congressional Research Service, 10/7/11]
For the truth about the historically low tax rates paid by the wealthiest Americans, click here
... While Their Income Has Risen By 256 Percent
CEPR Report Shows Income Of Top 1 Percent Increased 256 Percent From 1979-2006, While Lowest Quintile Saw Incomes Rise 11 Percent. From a December 2010 report released by the Center for Economic and Policy Research (CEPR):
[Center for Economic and Policy Research, December 2010]
For more on income inequality, click here
And Most Americans Who Are Exempt From Paying Income Tax Are Not Part Of Working Population
CBPP: "Vast Majority" Of People Who Neither Pay Income Nor Payroll Taxes Are Seniors, Students, People With Disabilities, And Others. From CBPP:
Some have implied or suggested that people who do not owe federal income tax are "freeloaders" who don't have a "stake in the system" and that making them pay federal income taxes would improve the tax code. Yet the vast majority of the people who owe no federal income taxes fall into one of three categories:
- Approximately 70 percent are working people who pay payroll taxes. As noted above, even the low-income households in this group pay substantial federal income taxes over time. The main options to force these people to pay federal income tax in years when their incomes are low include cutting the EITC or the Child Tax Credit, which would tend to reduce work incentives and increase child poverty and welfare use, and lowering the standard deduction or personal exemption, which could tax many low-income working families into, or deeper into, poverty.
- An additional 17 percent of people who did not pay federal income taxes in 2009 are people aged 65 or older. The main option to make these individuals pay federal income tax would be to subject their Social Security benefits to taxation.
- The remaining 13 percent consists largely of students, people with disabilities, the long-term unemployed, and others with very low taxable incomes. To make these people pay federal income taxes, policymakers would have to tax disability, veterans', and similar benefits or make full-time students and the long-term jobless individuals borrow (or draw from any available savings) to pay taxes on their meager incomes.
[Center on Budget and Policy Priorities, 5/31/11]
Tax Policy Center: "Share Of People Who Don't Pay Income Taxes Will Likely Shrink"
Tax Policy Center: "When People's Incomes Decline So Too Does Their Income Tax."Responding to the income tax number, Tax Policy Center economist Howard Gleckman wrote that "rarely has a bit of data been so misunderstood, or so misused." He went on to explain:
So who are these folks who pay no federal income taxes? Mostly, they are people who don't make very much money. Many are elderly: Think a widow living only on Social Security benefits. Others are parents earning less than $20,000. Only about 5 percent are non-elderly households making more than $20,000.It is no accident, btw, that the number of people not paying income tax was so high in 2009. You may have noticed that we've had a recession lately. And here is a powerful insight: When people's incomes decline so too does their income tax (at least most of the time). At the same time, many working families have benefited from temporary tax cuts aimed at boosting the economy, and as a result some did not pay income taxes last year. As the economy improves and those tax cuts expire, it should also be no surprise that the share of people who don't pay income taxes will likely shrink from half last year to less than 40 percent by 2012.There is, however, another reason why some people don't pay. For decades, both Democratic and Republican governments have made conscious policy decisions to remove low-income working families from the income tax rolls. And, guess what, sometimes government policy works exactly as intended. That's what happened this time. [Tax Policy Center, 4/15/10]