When Giving 106% Just Isn't Enough

There is a cliche in sports that you only win when you "give 110%"--that must apply to taxation as well.

The non-partisan Congressional Budget Office is out with its latest report on who pays taxes--and how much they pay--in America.  The study finds that in 2010 (the latest year that data was available) those with the highest 40% of incomes in the US paid 106% of the federal income taxes.  At first you might think "how is it possible to pay more than 100% of the taxes?"  Well, the same study finds that the bottom 40% of Americans pay -9% of the federal income taxes.

I bet you are thoroughly confused now. "How can you pay 'negative' income tax?"  You have to consider that low-income filers qualify for several tax credits--like the Earned Income Tax Credit and the Child Tax Credit--which can exceed any income tax that the filer may have had withheld from their paychecks (or pension payments).  When that happens, those filers get back more than they paid in--meaning a negative impact on the total tax collection.

For those in the lowest 20% of wage earners (those making up to $24,000 a year), they paid -9.2% of federal income taxes collected.  Those in the second-lowest 20% (many of whom would not be considered to be 'living in poverty' at up to $41,000 annually) paid -2.3%  Those in the second highest 20% (which would include a majority of the middle class with family incomes starting $81,000) paid 13.3% of the taxes while those in the top 20% (making over $182,000) paid 92.9 percent of the taxes.

The biggest problem with what should be a progressive system like the income tax is that we are seeing "bottom creep"--namely, the number of payers at the lower end of the scale are shrinking--putting more pressure on the declining number of payers at the middle and top end of the scale.  That is likely the result of higher unemployment, more retirees and stagnation of incomes at both the lower and middle section of the spectrum.  Also keep in mind, that the numbers are from 2010--when the economy was in worse shape than it is right now.  Perhaps 2012 or 2013 numbers might look a little bit better.

Does that mean that we should have a big tax increase on the poor or end the EIC or Child Credits?  No, the revenue possibilities are very limited from that end of the income scale.  What it should mean is a reconsideration in Washington as to how much money we are going to spend going forward--as the number of payers falls--and the number of "payees" continues to rise.

It should also silence those on the Left who drone on and on about how those at the top "don't pay their fair share".  If your liberal aunt brings that up at the dinner table during the holidays again you can chime in with "Yeah, 106% is clearly not enough."