Thursday, July 28, 2011

Who Pays the Most in Taxes?

The other day I caught a segment of The Last Word with Lawrence O'Donnell where Rep. Joe Walsh made a comment about the poor not paying their fair share of taxes. He said, "for the first time in this country we have 51% of the America people that aren't paying any income taxes." Since Orrin Hatch made a similar claim recently, it made me wonder exactly what these people are talking about. (Keep in mind I'm not an economist so there's a good chance I have no idea what I'm talking about.)

The first thing I wondered is whether or not this is even remotely true. Do 51% of Americans really pay no taxes? Well, yes and no. While it is true that 51% don't pay any income taxes, it's not true that they don't pay any taxes at all. It also turns out that the reason most of these people don't pay income taxes is because they have no income (like students and seniors) or they're so poor they simply don't make enough money to be taxed. Young people will pay taxes and older people already have so it seems a bit disingenuous to discount them so readily, but to be fair the 51% number is accurate. Then again, call me a bleeding heart but I have a hard time being angry that people who make less than $9,500 a year aren't paying more income tax. This 51% number is also higher because of the recession. According the Center on Budget and Policy Priorities, 35% to 40% is more usual.

As I said before though, the worst part about this statement is how it ignores the reality that everyone pays taxes in this country. Being poor doesn't stop people from paying federal payroll taxes, gas taxes, sales taxes, utility taxes and all sorts of other taxes. As it turns out, in all but one state the poor actually pay more state and local taxes than the rich. Federal income taxes are progressive, meaning you pay more if you make more, but the vast majority of taxes poor people do pay are regressive, meaning the poor pay a larger share. The Institute on Taxation and Economic Policy broke down the difference really well:
Even though 51% may not pay federal income tax, it turns out a higher percentage of their income goes to taxes than that of the downtrodden rich. The Center on Budget and Policy Priorities says, "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."

Knowing this, it made me wonder who pays the most taxes overall. Not that it ultimately matters, but you often hear Republicans say the rich carry most of the burden and I wanted to know if this was accurate. It turns out the federal income tax and the payroll taxes both account for about 40% of federal revenues. From 9 Things The Rich Don't Want You To Know About Taxes:
The Internet is awash with statements that the top 1 percent pays, depending on the year, 38 percent or more than 40 percent of taxes. It’s true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.

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.
So yes 51% of the country may not pay any federal income tax, but the claim is still pretty inaccurate. When all taxes are taken into account (federal, state, and local) even the "poorest fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010." Admittedly, about 14% of Americans pay neither the federal income tax or payroll taxes but that's nowhere near the often repeated 51% (and those people do pay sales tax and some pay property taxes).

If you'd like more information, I found a great breakdown here (pdf): Who Pays? A Distributional Analysis of the Tax Systems in All 50 States


  1. So how much revenue stands to be made off of the 51% of people who do not make enough to have their income taxed? Really. If someone is making $9,500 a year, what could they contribute? In comparison to the amount of $1+ trillion in revenue to be made if the top 2% of earners paying taxes...

    The difference between the 51% who don't make enough money to pay income taxes and the wealthiest 2% who aren't paying income taxes because they can afford a slew of accountants to exploit every loophole in the tax code, is that every penny of that $9,500 the poor people make a year is going right back into the economy. They're not putting it into foreign bank accounts and investments to create more wealth for themselves.

    They're using that 51% number to try to counter the argument that the top 2% of earners aren't paying enough taxes. Because apparently, our current government is comprised of 2 year olds who do not understand the concept of sharing and helping.

  2. Haha that was my reaction as well. I wanted to see how the numbers added up though. And I meant to mention the top 2% are paying less than they were historically. Great comment.

  3. Employers and not employees pay the unemployment taxes unless you are the owner of a corporation like myself. Since I cannot fire myself, I can never draw unemployment but still pay the taxes. Most rich people do pay the higher tax rates (fed & state) and use their discretionary income to invest in American companies and buy your goods and services. Please don't continue to vilify the rich. Close some of the true loopholes but don't class all rich people as sarahbear has done. Like many, I have built a business that created jobs for you to be part of a productive America. You have the same opportunity and I will not vilify your right to keep some of your hard earned income. Think outside the box!

  4. No one is vilifying the rich and it's disingenuous to claim it's "thinking outside the box" to repeat the same old tired party rhetoric that's been a part of this nation's political machine for decades. No one is saying the rich don't deserve what they have. All I am saying is that it's bullshit to try and give them some sacred status as the people who pay taxes and fund our country while ignoring the reality that almost all people pay some form of taxes in this country. The wealthy can pay lobbyists to speak for them so pardon me if I'd rather speak up for the middle and lower class (which I belong to and therefor am more invested in).

    If pointing out FACTS is some sort of unbearable burden for you then I don't really know what else to say. Did you even read the post?

  5. The rich do fund the country. The top 25% of taxpayers pay 86.34% of the taxes. Let's let them pay 100% and you will have your welfare state. how much more can we tax. The facts do not support your positions, I guess that’s why I never see your facts. It is not about taxation, it is about SPENDING. and there obama has failed miserably. Give Hillary a chance, I will vote for her. But stop defending the indefensible. For 18 months it was all Obama care. Where were all the jobs bills when he had a democratic congress? it was all about his legacy. Then, oops, unemployment is 9%. For the unemployed that don't want a free ride ask them what they want. Obamacare or a job. Both parties have had failed presidencies and good ones. Let's admit that and put someone in the White House who can solve these problems before it is too late. You have good people in your party who can do it. When will you stop hiding behind party rhetoric and get behind one. I am an independent, my vote will elect the next president.

  6. Your comment is not even worth my time since it's filled with ridiculous statements and empty rhetoric. But I'll try anyways.

    1. This post is about the fact that ALL people pay taxes and it's disingenuous to say "51% of the America people that aren't paying any income taxes" in an attempt to make it look like only the wealthy care about the country or are contributing to the burden. This post is not about tax rates and whether or not certain people should pay more. It's about me wanting to fact-check an often used claim.

    2. Your claims I want a welfare state are completely inaccurate and unworthy of my time. If you want to be an asshole go somewhere else. Seriously, there are so many things I could be criticized on but this is just pathetic.

    3. Again, saying "the top 25% of taxpayers" is disingenuous and shows how deluded you are. People making $67,280 a year are NOT being compared to the top one percent. You don't get to pick your numbers where you want to make your point. But since you brought them up, people making $67,280-$113,798 pay 86.34% of Federal Personal Income Tax compared to the top percents 38.02%. (And this comes from the NTU.)

    This shows a fundamental problem at the way many people look at taxes. You are not the top one percent and it actually hurts the bottom 90% to vaguely identifying as such. It's like people protesting taxes on April 15th when they just got a tax break. Lunacy.

    3. The facts do support my position. You know why? My position is ALL PEOPLE PAY SOME FORM OF TAXES IN THIS COUNTRY. If you pulled your head out of your ass long enough to actually think about what I typed instead of rejecting it because it doesn't fit into your entrenched ideology you would see that. Who knows though? Maybe miracles really do happen.

    4. The top one percent do not fund the country. Yes, the top 1 percent paid 38 percent of the federal income taxes in 2008. That's true. But the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government (at least according to David Cay Johnston). Plus, after the bush tax cuts the top one percent are paying less income tax than ever before (this doesn't even include the loopholes). So it's historically ignorant to bemoan the tax rate.

    5. Yes, lets blame the fact congress is a joke on Obama. A job or Obamacare? You can't seriously think this is some zero-sum game. Should a jobs bill have come first? Maybe. But maybe after passing the stimulus the Obama Administration probably thought they could pass health care reform without everyone turning into screaming infants. They were wrong. If you think that was a bad choice, then fine. But there's a jobs bill Obama is trying to pass RIGHT NOW that republicans are blocking. Where is your disdain for them mister independent?

    6. You don't balance a budget by just focusing on spending. If you think a large multifaceted problem as complex as the economy can be reduced to just spending, you're deluded.

    7. I don't have a party. I'm not a democrat but your claims I want a welfare state show how little you know about me. Also, do you think your false conciliatory tone was gonna win me over or soften my position? You basically called me a liar so excuse me if I don't buy your bullshit. I'm hiding behind party rhetoric? Seriously, you're so dumb it's actually hurting me right now. YOU CAN'T TYPE "WELFARE STATE" IN ALL SERIOUSNESS AND THEN CRITICIZE SOMEONE FOR "HIDING BEHIND PARTY RHETORIC." This is what they call cognitive dissonance.

  7. The reality is that since Reagan only the wealthy have seen significant income growth. Plus, some corporate taxes actually kill jobs. Also, the GOP actually killed the Obama’s Making Work Pay Credit while extending the Bush tax cuts (which Obama did agree to) effectively raising taxes on the working class. So don't give me some bullshit about being Independent and blah blah blah. You're no more independent than I am and in a two party system everyone belongs to someone. But pretty please o wise one, do choose carefully when you pick the next president.

    Also, if you don't want to have a genuine conversation then please don't come back. I don't care that we disagree, but you can't claim you know what I think or what I want. In fact, this isn't even about me. This is about the fact all people pay some form of taxes. Period. If you want some libertarian 'abolish all taxes' circle jerk then I'm sure you can find one. But not here.

  8. I am terribly impressed Alana! Thank you for sharing, and passionately.

  9. Thanks Mike! I was worried you'd be another troll. lol

  10. I found your blog looking for a site that cited ACTUAL data. Thank you so much for putting this on the web. I am a loan liberal in an office full of conservatives who keep spewing this "top 1% pays 40% of all taxes" crap. Thank you!!!

  11. hahaha. Lone. Not loan. Sorry!

  12. Nice! I was reading a Slate article about income taxes -- and I was wondering, "What about payroll, sales, property, and the rest?" I'm glad to see someone else thought about it, too.

    The one reason income tax comes up so much is that it is the most easily adjustable. If sales tax and property taxes and payroll taxes are regressive -- and they are -- we'll have to fight state by state to reform them. A more progressive income tax is more easily in reach -- hence the reason that conservatives and liberals alike harp about it. Kudos!

  13. Thanks you guys. :)

    Ryan: That's a good point and one I hadn't considered before!

  14. I know I'm late to this party but... I believe he is specifically talking about income taxes. It's pretty obvious that even the 47% pay the other taxes. I also believe it is income taxes that are being singled out when Obama says that the rich must pay their fair share. This is why conservatives harp on the top X percent pay the lionshare of the (income) taxes in this country. So with that being said most of your post is irrelevant to the conversation.

    1. I never said those that pay income taxes don't pay other taxes. My original question was whether or not the statement "51% of the America people that aren't paying any income taxes" was true or not. You don't get to decide what is or isn't relevant to a conversation.

  15. can I just get a medal for all the taxes I pay. I am glad to pay my share but I really would prefer a pat on the back versus a slap in the face.

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