Who’s Really Paying Their Fair Share?

Wednesday, April 11th, 2012 and is filed under Blog, Taxes

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If there is one inviolable rule in politics it is this: the reality is the antithesis of Democrat assertions.

As Obama and Democrats run around talking about the rich paying their fair share and tax cuts for the rich, consider these facts about the trend of our tax system over the past few decades.

The inconvenient truth for the left is that the tax code has become more progressive over the past few decades, not less progressive.  This trend has grown because of the tax cuts, not despite them.  While class warriors like to focus on the fact that Republican tax cuts lowered taxes on the rich, they forget that those tax cuts also removed millions of people from the tax rolls through the elimination of tax brackets and the expansion of the EITC and Child Tax Credit.

Let’s compare the change in share of the tax burden since 1980:

Top 1%

Top 5%

Top 10%

Top 25%

Top 50%

Bottom 50%

1980

19%

36.80%

49.30%

73%

93%

7%

2009

36.70%

58.60%

70.50%

87.30%

97.75%

2.25%

As you can see, the tax code has become increasingly progressive, to the extent that the rich pay almost twice the share of taxes they did in 1980.

Now let’s examine the trend line of lower-income earners.  Due to the Bush tax cuts and growth of refundable credits, in particular, more people than ever pay no income taxes.  In 2009, 25 million tax filers claimed the refundable portion of the earned income credit, at a cost of $54 billion.  Additionally, 21 million people claimed the refundable portion of the Child Tax Credit, at a cost of $27.5 billion.  Another 32 million enjoyed the two-year Making Work (refundable) Credit, at a cost of $13 billion.  In other words, the government spent more money ($94 billion) on giving people positive tax liabilities than it did on the burgeoning Food Stamp program ($77 billion).  Put another way, the government (i.e. the rich taxpayers) spent more on refundable tax credits than the entire sum of tax revenue generated by the 25%-50% tax percentile – the critical middle class. [See tax info from the Tax Foundation here]

All these credits, along with the elimination of lower tax brackets, has engendered a dynamic in which almost half of tax filers paid no income taxes, while 30% actually make money from the tax code.  In 1979, just 22.6% had a zero tax liability.  In 2001, prior to the Bush tax cuts, that number was still as low as 27%.

Yes – I know.  Many of these people (but not all) still pay payroll taxes.  But that is a non-sequitur because everyone receives Social Security and Medicare.  Those programs are not supposed to serve as welfare, so everyone must pay into them, irrespective of their income.  Therefore, one cannot expect to receive full benefits without paying into the system, or without transforming those programs into redistributive schemes.

Whether you think this is a virtue or a vice, the reality is that we have the most progressive tax system in the world, and it has become dramatically more progressive over the past 30 years.  To suggest otherwise is to live in the world of the unwashed OWS protesters in Manhattan.  I guess that is Obama’s base.