By Ezra Klein | April 14, 2010; 2:26 PM ET
As Jon Stewart details in the clip above, some in the media have fastened on a Tax Policy Center report saying that 47 percent of Americans pay no federal income tax. Is it true? In a very limited sense, yes, about 47 percent of households are owed more in federal help than they pay in federal income tax. But it's not because they don't owe federal income tax. It's because they're owed other money that runs through the tax code.
The Earned Income Tax Credit, for instance, is an income-support program created by Richard Nixon and expanded by both Ronald Reagan and Bill Clinton. The underlying idea came from legendary conservative economist Milton Friedman. So this is bipartisan stuff. And it was designed to run through the tax code rather than just send recipients a separate check. So if your income is low, you may (1) owe very little in income taxes, and (2) get a check through the EITC. The result isn't that you don't owe anything in federal income taxes, but that your income tax liability is wiped out by your EITC check. The critics of the tax code don't seem to know this, but their problem is with programs like the EITC -- of which there are many, some of which help the middle class -- not income tax brackets.
That accounts for a lot of the people who don't owe federal income taxes. But it doesn't account for the bigger dodge here: Why are we talking about federal income taxes at all?
I'm going to be charitable on this and assume that people are biased toward their own experiences rather than playing loose with the data. For upper-income folks -- journalists, television executives, congressmen, think tank employees -- the big hit is on income taxes, so they get pretty annoyed when they hear that lots of Americans don't pay any income tax. But their experience is not typical. Most people's tax burden has a very different composition. As David Leonhardt points out in a typically excellent column today, "about three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes." And that doesn't even mention state and local income taxes.
So let's mention them. The following graph comes from a report (pdf) by Citizens for Tax Justice. It compares the share of the total tax burden -- that means income taxes, payroll taxes, state and local taxes, capital gains taxes, and so forth -- with the share of the total income for different groups. It's the single most important graph to understand our tax system.
Doesn't look so disproportionate now, huh?
By Ezra Klein | April 14, 2010; 2:26 PM ET