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Tuesday, April 14, 2009

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I'm always a little amused when I see these attempts to put tax payments in perspective. The intent is almost always to show that the rich don't pay as much as it seems relative to the rest of us. It's always a matter of including payroll and excise taxes in order to show the "total tax burden". I guess that we all want to believe that we contribute "our fair share", particularly if we are advocating increased government spending on programs we hope to benefit from. But every ledger has two sides and when honestly tallying a persons total tax burden they must both be taken into account. Here is an excerpt from a study done by The Tax Foundation in 2007:

A new Tax Foundation study, "Who Pays America's Tax Burden, and Who Gets the Most Government Spending?" shows that the typical low-income household pays $1,684 in total federal taxes, yet receives $17,724 in federal transfer payments alone, not to mention other federal programs such as education and public transportation In other words, the typical low-income household receives $10.53 in transfer payments for every dollar it pays in federal taxes.

... the vast majority of low-income households pay little or no income taxes and only a modest amount of other federal taxes such as payroll and excise taxes. Indeed, some 44 million Americans file a tax return but have no income tax liability after taking advantage of their credits and deductions. An additional 15 million earn some income but not enough to be required to file an income tax return. This brings the number of Americans outside of the federal income tax system to 58 million.

Many of those who pay no income taxes still get generous subsidies from the IRS through the Earned Income Tax Credit. Indeed, the IRS sends out some $36 billion each year in "refundable" checks to low-income households. In many cases, these subsidies more than offset the amount these workers pay in payroll and excise taxes.

The Tax Foundation

P.J. O'Rourke puts it another way in a piece titled "A Nation of Moochers":

Pete Sepp of the National Taxpayers Union did some complicated mathematics and says, "By my reckoning, somewhere between 85 and 95 million households out of 115 million total have a smaller tax liability than the per-capita spending burden." The breadwinners for 18 to 26 percent of our households are shoveling coal in the engine rooms of the ship of state, while everybody else is a stowaway, necking with Kate Winslet like Leonardo DiCaprio in Titanic.

Pete Sepp goes on to note that those breadwinners doing all the work are also less likely to be on welfare or receiving other government largesse and are more likely to have their Social Security benefits taxed. "If we were to compensate for this," he says, "I imagine that more like 100 million households have a smaller liability than the per-capita spending burden." One hundred out of 115 is 87 percent. Our nation is 87 percent mooch, 87 percent leech, 87 percent "Spare (hope and) change, man?"

It may be even worse than that or--depending on how greedily liberal you are--better. Let's abandon the complicated mathematics of taxation. We don't understand complicated mathematics. We were liberal arts majors. If we understood complicated mathematics we'd be wealthy hedge managers in jail today. Let's go to arithmetic. The U.S. gross domestic product for 2008 has been calculated by the Department of Commerce's Bureau of Economic Analysis as $14.2 trillion. Say the recession keeps recessing and GDP shrinks a bit in 2009. We'll round down to $14 trillion. The federal budget, being $3.6 trillion, is 25.7 percent of the gross domestic product. The government makes off with 25.7 percent of our goods and services. This is our real rate of national taxation. Then the government gives us an $11,765 kickback. If we figure out what $11,765 is 25.7 percent of, we see that before you can call yourself a taxpayer instead of a tax vampire you have to earn $45,778 if you're single, and $228,890 if you're supporting that family of five.

The Weekly Standard

Our nation has an extremely progressive tax structure. What it lacks, is any appreciation for those who contribute the most.

Some good discussion of this at Thoma:

http://tiny.cc/KCH9w

Using payroll, state and local taxes in the calculation of progressivity is "amusing" to conservatives, until they want to prove that we're taxed to death. Then they love to generate figures that include payroll, state and local taxes. That's amusing.

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