First, too many people look only at income taxes, ignoring all other forms of taxes, and decide that the wealthy pay a disproportionate share of taxes. There is some truth in this since they pay a larger portion of the income taxes than their proportion of the population. But they also have a much larger portion of total income than their proportion of the population.
When you take a deeper look, basing tax policy only on income taxes is itself a distortion. Taxes consist of more than just federal income taxes. There are also payroll taxes, sales taxes, property taxes, and the like. The latter fall far more heavily on middle and lower income people than on the truly wealthy. There is an income cap on most payroll taxes, so no tax is paid on income above the cap.
Sales taxes are based on consumption, and middle and lower income people consume most, if not all, of their income. When your income is lower, you have to spend it all in order to survive. Property taxes again fall more heavily on middle and lower incomes. Property taxes are levied on real property, while the truly wealthy hold more of their assets in intangibles.
There have been studies done of total tax burden across income groups. What they found was that when total tax burdens from all taxes are added up, lower and middle income people pay about as large a portion of their income in taxes as the wealthy. So no, total tax burdens are not falling mostly on the wealthy.
Some would ask why we should have to pay taxes at all. I suppose that is a fair question, but what do we as a society gain from those taxes? We primarily get roads and bridges, schools, police, fire departments, and national defense. Without government expenditures on roads and bridges, we would either be driving on toll roads or unpaved trails. Due to high levels of anti-government sentiment, these roads and bridges are not being maintained as well as they should. Does the fault lie in government or in anti-government rhetoric?
People complain about the public school system, which is also paid for by taxes. Some time back, people got a “results driven focus” with respect to schools. What that pushed the public schools to was a curriculum based around standardized tests that purportedly measured a student’s progress. For most of the 20th century, when large numbers of children were very effectively educated in public schools, there was only a minimal focus on standardized testing. Teachers now have to ‘teach to the test’, instead of genuinely educating students and building an intellectual curiosity in them. That is less the fault of the public schools and more the fault of societal demands on those schools. Also attitudes towards public schools seemed to change when integration arrived in the 1970s and beyond.
Few people seem to have much problem with paying for police, fire, or national defense. What we hear is a chorus of “what about welfare – why should I pay taxes to support lazy people only looking for a handout?” When you look at total federal spending, only a tiny percentage goes to ‘welfare’ type expenditures. Far more goes to social security, medicare, defense spending, and interest on the national debt.
Some would say that even if only a small part of the budget goes to welfare, we shouldn’t be supporting lazy people and ‘welfare queens’. When you look, you find adults are not allowed to remain on welfare for more than a couple of years. Beyond that, most welfare recipients are children, the elderly, and the disabled. They aren’t lazy or looking for a handout, they just want to survive with a little food, clothing, and shelter. Of the adults receiving welfare, the majority work during the time they receive benefits, and most would work more if they could.
Some would ask why we have to support them at all. Perhaps it is because we don’t want children to starve just because their parents can’t find work. I know some folks would say those people should be working and supporting their families. I agree and they should make enough money working to allow them to support their families.
Given that we have roads and bridges falling apart, maybe for able bodied adults, we should replace ‘welfare’ with guaranteed employment at a living wage. Instead of giving assistance to the adults, give them a job repairing infrastructure and doing the support work related to that. Make the pay high enough to allow them to pay for food, shelter, clothing, and transportation.
That does some important things – we don’t have “lazy people asking for a handout”, we don’t have children without food or shelter, and we give people the chance to gain self respect through employment. It might well cost more than traditional welfare, but we would also gain by improving infrastructure, increasing economic activity, and ironically increasing tax revenues. All those people earning income would be paying taxes – income taxes, payroll taxes, sales taxes, etc. Maybe I’m wrong, but to me it is a win-win-win proposition.
One thing that is unquestionable is that we need genuine income tax reform. The current tax code is so complex that most people cannot do their own taxes. Those who do manage, nearly always use purchased software in order to handle it. We can reduce deductions and reduce marginal tax rates without crippling government. I know there are folks who want nothing more than to cripple government, but most of us rely on government far more than we realize.
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