The Myth of the Non-Paying 47 Percent

http://economistsview.typepad.com/economistsview/2012/03/the-myth-of-the-non-paying-47-percent.html

Another reminder that Republican politicians are citing tax figures that are a very misleading indicator of the overall tax burden that various income groups face:

The Myth of the Non-Paying 47 Percent, CBPP: The argument that we should raise taxes on the bottom half of households because too many of them don’t owe federal income tax doesn’t take the tax system as a whole into account, our former colleague Aviva Aron-Dine explains in a new piece in the Milken Institute Review. Here’s an excerpt:

These are tough times, especially for low- and moderate-income families. For much of 2011, the unemployment rate exceeded 9 percent, and was higher among those without a college education. Last year, 15 percent of Americans lived in poverty, up from 12 percent before the recession. Meanwhile, the median income of working-age households fell sharply for the third year in a row. And that decline came on top of more than three decades of sluggish growth for all but the highest earners.

Yet to hear some people tell it, one of the major problems facing America is that the bottom half of U.S. families is getting off too easy. Every major candidate in the Republican presidential race, along with the Republican congressional leadership, has expressed outrage over the fact that 47 percent of households didn’t owe any federal income tax in 2009. …

But the picture changes dramatically once other federal taxes are included. When all federal taxes are taken into account, even the lowest fifth of households (with average incomes of about $18,000) pay 4 percent of income in federal taxes, while the second-lowest fifth (average income: $43,000) pay 11 percent. ...

State and local tax systems are typically quite regressive... When state and local taxes are taken into account along with federal taxes, the poorest fifth of households pays about 15 percent of income in taxes; the next fifth pays about 21 percent.

[...]

The percentage of people who didn't pay federal taxes in 2009 was also elevated due to the recession, so even in isolation this figure distorts the picture relative to more normal times.

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