Recent News about Income and Work Supports

Who Pays Taxes in America?

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Read the PDF of this report.

It’s often claimed that the richest Americans pay a disproportionate share of taxes while those in the bottom half pay nothing. These claims ignore the many taxes that most Americans are subject to — federal payroll taxes, federal excise taxes, state and local taxes — and focus instead on just one tax, the federal personal income tax. The other taxes are mostly regressive, meaning they take a larger share of income from a poor or middle-income family than they take from a rich family.[1]

Many Americans do not have enough income to owe federal personal income taxes, but do pay these other taxes. The federal personal income tax is a progressive tax, and the combination of this tax with the other (mostly regressive) taxes results in a tax system that is, overall, just barely progressive. Total tax obligations are, on average, fairly proportional to income.

This table illustrates the share of total taxes (all federal, state and local taxes) paid by Americans in different income groups in 2011.

 

• The share of total taxes paid by each income group is similar to that group’s share of total income.

• The share of total taxes paid by the richest one percent (21.6 percent) is almost identical to that group’s share of total income (21.0 percent).

• The total effective tax rate for the richest one percent (29.0 percent) is only about four percentage points higher than the total effective tax rate for the middle fifth of taxpayers (25.2 percent).[2]

• The share of total taxes paid by the poorest fifth of Americans (2.1 percent) is only slightly less than this group’s share of total income (3.4 percent).

Virtually every person in America pays some type of tax. Everyone who works pays federal payroll taxes. Everyone who buys gasoline pays federal and state gas taxes. People who shop in stores pay the sales taxes that most state and local governments impose. State and local property taxes affect everyone who owns or rents a home. (Even renters pay property taxes because landlords pass some of the tax on to them in the form of higher rents). Most states also have income taxes, most of which are not particularly progressive.

 

 

Why the Federal Personal Income Tax Is Progressive

We need the federal personal income tax to be progressive to offset the regressive impacts of these other taxes. 

For example, the federal personal income tax provides refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit, which can reduce or eliminate personal income tax liability and even result in negative personal income tax liability, meaning families receive a check from the IRS. These tax credits are only available to taxpayers who work, and who therefore pay federal payroll taxes, not to mention the other taxes that disproportionately affect low- and middle-income Americans.

In other words, the parts of the federal personal income tax that seem like a boon to the poor are justified because they offset some of the other taxes that poor and middle-income families must pay.

As these figures illustrate, America’s tax system as a whole is just barely progressive.

 


[1] For a state-by-state break down of the distribution of state and local taxes, see Institute on Taxation and Economic Policy, Who Pays: A Distributional Analysis of the Tax System in All 50 States, November 2009. http://www.itepnet.org/whopays.htm   

[2] There are some high-income individuals who have effective federal tax rates that are much lower than average for their income group. See Citizens for Tax Justice, “How to Implement the Buffett Rule,” October 19, 2011. http://www.ctj.org/pdf/buffettruleremedies.pdf

 

The 15.1 percent of individuals and 11.7 percent of families living in poverty in 2010 according to newly released Census data are the Americans most likely to be harmed by calls in Congress to address the large numbers of people who allegedly are “paying no taxes.” Aside from recipients of Social Security benefits (which are largely untaxed), all but the poorest Americans do pay federal income taxes or federal payroll taxes or both.

Read the report

(Updated to include state-by-state figures)

The compromise tax plan agreed to by President Obama and congressional Republicans would provide more than a quarter of its tax cuts to the best-off one percent of all Americans. That’s almost double the share of the tax cut that the President proposed to give the highest earners. At the same time, the new tax plan would reduce taxes, and increase the budget deficit, by $424 billion in 2011 alone. That’s 40 percent more in tax cuts than the President had earlier proposed.

Read the report.

The American Recovery and Reinvestment Act of 2009 (ARRA), signed into law by President Barack Obama, expanded two refundable tax credits, the Earned Income Tax Credit and Child Tax Credit. While most of the provisions in ARRA are intended to be temporary, President Obama has proposed making permanent these expansions of refundable tax credits for low-income families. These figures show how these expansions would affect taxpayers in different income groups if extended through 2011 and how many families and children would be helped in each state.

Read the report.

 

With both the Bush tax cuts and President Obama’s expansions of certain parts of those cuts set to expire at the end of 2010, the decisions Congress makes in the coming weeks will have very different effects on taxpayers at different income levels, according to a new report from Citizens for Tax Justice. The report shows that low- and middle-income taxpayers will pay higher taxes under the Republican approach than under President Obama’s approach. It also shows that the richest taxpayers will pay far less under the Republican approach than under President Obama’s approach.

Read the report and state-by-state fact sheets.

 

 

 

 

 

 

 

 

While we have never supported the “tax extenders,” we believe that this is a more responsible approach than Congress used in the past, when the tax extenders were deficit-financed. We
also believe that the loophole-closing provisions used to pay for them will enhance tax fairness. For these reasons, we believe passage of this bill would be a major victory in that it shows Congress is finally putting the economic needs of ordinary Americans ahead of tax cuts for the wealthy and powerful.

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All Americans Pay Taxes

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Conservative pundits and media outlets have seized upon an estimate that 47 percent of taxpayers owe no federal income tax for 2009. This statistic has morphed into the claim by conservatives that “47 percent of all Americans don’t pay any taxes.” The conservative pundits are wrong. It’s true that many taxpayers don’t pay federal income taxes, but they still pay federal payroll taxes (and some federal excise taxes) and also pay state and local taxes. Most of these other taxes are regressive, meaning they take a larger share of a poor or middle-class family’s income than they take from a rich family.

Read the report.

 

 

 

 

 

 

 

 

CTJ has new state-specific reports that aim to clear up this widespread misunderstanding over President Obama's tax policies. They show that the President cut taxes for working people at all income levels for 2009 and they show who was helped by each individual tax break.

Read the fact sheet and the report for your state.

 

 

 

 

 

 

 


Over the past several weeks, Democratic leaders in the House and Senate have pursued a strategy of enacting several small pieces of legislation to address joblessness. While lawmakers might find this strategy easier than passing one great big bill, it does make it a bit difficult for those of us who are trying to keep track of which tax provisions Congress has passed and which provisions are still being debated. This report simplifies this task by summarizing recent activity on jobs bills and describing each bill and the tax provisions included.

Read the report.

 

 

 

 

 

 

 

 

CTJ's Legislative Agenda for 2010

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Steps Congress must take to avoid larger budget deficits and restore fairness to our tax system.

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CTJ Reports



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