Tax Day -- But for Fewer and Fewer Americans

As Rob Vischer noted in his post earlier today, "Tax Day" has arrived again.  Rob takes the occasion to call for higher taxes (but only on the "wealthy," of course, and he acknowledges, sort of, the need for spending cuts as well).  But let me here highlight an ongoing trend in taxation that raises other questions for Catholic Social Teaching about solidarity and the common good.  Nearly half of Americans have little or no reason to be concerned about rising government spending or budgetary deficits because they're paying little or nothing in federal income taxes.

With only a slight shift in the trend from recent years, only 55 percent of Americans paid any federal income tax for 2010 (here).  And, no, the 45 percent that owed not a cent of federal income tax obviously cannot be dismissed as the wealthiest who have cleverly used tax shelters to avoid paying their fair share.  Rather, 93 percent of those who owe Uncle Sam nothing in federal income tax are those earning $50,000 a year or less (some 63 million families). 

Should we be troubled by this development?  Rob tells us that "payment of taxes" is "part of the duty of solidarity."  But we have reached the point where the entire non-entitlement portion of the federal budget is funded by only a little more than half of Americans.  Indeed, the top 1 percent of income earners pay 38 percent of the federal income tax revenue (here).  Even if we look at all sources of federal revenue, including the federal payroll tax, the top 1 percent of income earners still bears 28 percent of the overall federal tax burden.

Moving a little further down the income ladder, the Tax Foundation reports that for the most recent year for which data is available (2008), "[t]he top 5 percent earned 34.7 percent of the nation's adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes."  And this calculation doesn't even begin to account for the fact that many of the top-earners effectively paid double taxes on much of that income:  once through corporate income taxes and then again through individual income taxes on capital gains and dividends.

So what again is the argument that the top earners should be taxed at an even higher rate as a matter of "solidarity" or fairness?  Even aside from the economic impact of imposing a tax penalty on those investing in the stagnant economy and creating any new jobs, the solidarity and equity arguments that the top five percent should pay for nearly three-fifths of the federal budget escapes me.  And when a large segment of the population has nothing financially at stake in federal budgetary and tax policy, because they pay not a single cent in federal income tax, then what remains "common" about the tax burden part of the "common good"?  What are the moral implications when half of the country is fully enjoying the benefits of the federal government, while the expense of that government is wholly borne by the other half (and most of that by an even smaller fraction of the population)?

I'm certainly not attracted to any suggestion that we ought to raise taxes on all Americans to ensure that everyone is invested to at least some degree in the federal budget and that everyone shares in the pain of excessive federal spending.  I've never subscribed to the leveling-down inclinations of the political left.  And, importantly, many (but not all) of the non-poor who pay no federal income tax are still paying payroll taxes to (supposedly) fund Social Security and Medicare (and paying state and local taxes as well).  I'm not convinced that any part of the American public is "under-taxed."  And transferring more money from a still-struggling economy to a still growing federal government doesn't strike me as a wise investment, especially at this time.

But if Rob Vischer is going to "jump[] onto this soap box" and argue that federal income taxes should be raised for deficit reduction, then shouldn't he be arguing that taxes ought to be raised for all and across-the-board, not just for the half of Americans that already are carrying the entire burden or the five percent of our fellow citizens that pick up three-fifths of the tab for federal spending?  As the Tax Policy Center estimates, if all tax breaks were eliminated, then, yes, the wealthy would pay more, but the 45 percent who currently are paying nothing would drop to 27 percent, meaning more middle- and lower-income Americans would start paying taxes as well.  Isn't that what is necessary for true solidarity by the lights of the "raise taxes" argument?

In any event, since half the country already is carrying the entire non-Social Security entitlement portion of the federal government and five percent is carrying nearly 60 percent of that tax load, the "tax the wealthy" slogan speaks more to present reality than future aspiration.  And given how much of federal spending already is funded by the few, there certainly is nothing realistic about any suggestion that raising taxes on the wealthy will solve the fiscal crisis, especially after President Obama quadrupled the federal deficit (here).  In my view, neither fiscal sanity nor "solidarity" and the "common good" are advanced by another tax hike on anyone.

Greg Sisk