Are Low-Income Households Paying Too Little in Taxes?
Should We Aspire to a Texas-style Distribution of Taxes?
“We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”
It’s an odd complaint coming from someone as anti-tax as Perry seems to be. More importantly, it creates the very erroneous impression that low-income Americans aren’t paying a significant portion of total taxes in this country. An August 15 Washington Post column by Ruth Marcus thoroughly rebuts the notion that the tax system has gotten too progressive, with poorer households escaping or shirking any responsibility for financing government. This blog post outlines the facts regarding who pays taxes and compares the distribution of tax payments in Wisconsin and Texas.
It’s true that nearly half of Americans (46%) don’t have any federal income tax liability, but they pay other federal taxes, plus state and local sales and property taxes. In most states, Texas in particular, the progressivity of federal income taxes helps mitigate the regressivity of state and local taxes. (See America’s Tax System Is Not as Progressive as You Think.)
Figures from the Tax Policy Center show that that among the people who don’t pay federal income taxes, about three-fifths pay payroll taxes. And among the others – the 18% of all households who pay neither income nor payroll taxes – most are elderly and nearly all of the rest have an annual income of less than $20,000.
- In Texas the top 1% of earners pay 3.3% of their income in state and local taxes, compared to 8.5% of income by the middle fifth of Texas taxpayers, and 12.2% of income by the bottom fifth.
- Wisconsin’s tax distribution is much flatter, with the highest percentage contribution made by middle-income taxpayers. The top 1% of earners pay 8.0% of their income in state and local taxes, compared to 11.2% for the middle fifth, and 9.2% paid by the bottom fifth.
- Using the ITEP figures to compute a ratio comparing the state and local tax rate for the lowest income fifth with the top one percent, the low-income households in Texas pay a rate 3.7 times as high as the wealthy in Texas, whereas that same ratio is 1.15 in Wisconsin.
Though I strongly disagree with Perry’s comments about taxes, I’m glad he raised the issue of tax fairness and has generated some debate about it. The next time he addresses the issue, I hope he goes beyond a general observation about the “injustice” he perceives, and shares with us how he thinks the income tax should be broadened. A public airing of these issues and debate about a range of options for creating a fairer tax system would be a welcome development.