As I pointed out last week, while the federal income tax has risen with incomes, the employment tax has soared. Once miniscule, the employment tax now looms larger than the income tax for most working Americans. Even if you accept the fiction that employers pay half of the employment tax, the employee share is greater than the income tax for more than half of all working Americans.
That's why it's significant that both Presidential candidates pandered to voters in all 50 states by offering succulent income tax cuts, but neither suggested cutting the employment tax. By maintaining their focus on the income tax politicians in both parties can do what they do best.
Republicans can piously intone that the top earners pay most of the income taxes. As ludicrous as executive compensation is today, Republicans still seriously claim that 'incentive' is blunted by high income tax rates. In fact, 'incentive' is far more blunted for a working stiff than for an executive who reaps as much income as possible in capital gains taxed at 20 percent.
Meanwhile, whining Democrats offer to slice a few tidbits out of the tax code, and toss them to a hungry public as though they were gifts instead of returned taxes. What neither party wants us to figure out is that they are skinning everyone but the poor with an even hand. When you combine the employment and income taxes you learn the politicians dirty little secret.
We have a remarkably flat tax structure. People who are very well off carry a tax burden--- measured as a percent of income paid in taxes--- that is not much greater than people who have trouble making ends meet.
I don't blame you. But you can get some idea of just how flat our tax system is by examining figures prepared by the Joint Economic Committee of Congress.
Dividing all earners into groups, the JEC researchers calculated the average income tax on each group, the average employment tax, and the average total tax rate. The lowest quintile earners--- those in the bottom 20 percent of the income pyramid earning an average of $11,265 a year--- had a negative total tax burden after considering the Earned Income Tax Credit.
The remaining 80 percent of all earners, however, paid taxes at rates that ranged from 18.8 percent to 24.0 percent. Not exactly a big spread.
Here are some of the figures:
• The 4th Quintile. Those in the bottom 20 to 40 percent of all households had an average income of $25,955 and paid income taxes of $1,273 compared to combined (employer/employee) employment taxes of $3,972. That brought their total taxes to $5,245 or 18.8 percent of income.
• The Middle Quintile. Those in the middle 40 to 60 percent of all households had an average income of $40,637 and paid income taxes of $3,611. Their combined employment tax payments, $6,218, were still nearly twice as much as their income tax. Their total tax payment, $9,829, absorbed 22.6 percent of their income.
• The Near-Affluent Quintile. In the 60th to 80th percentile, the average income was $59,457. In that bracket the average income tax payment was $5,636 and the combined employment tax was $9,096. The total tax burden was 23.0 percent. In other words, the tax burden hardly changes even though income rises by about 50 percent.
• The Affluent Quintile. Those in the top 20 percent of all earners have an average income of $119,453. They paid income taxes of $18,927 and combined employment taxes of $11,052. Their total tax burden, $29,979, takes 24.0 percent of their income.
Note that there is virtually no difference between the total tax burden on the middle quintile's $40,637 income and the total tax burden on the affluent quintile's $119,453 income, 22.6 percent and 24.0 percent, respectively. Note also that income has tripled.
The most important fact isn't one tax or the other. Nor is it one tax break or another. It is that the federal government taxes all of us--- regardless of income level--- very heavily.
Readers can find the entire study on the web
The earlier column on taxes and the rising cost of living can be found here)
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