A Taxing Issue
I’m not sure how or when our political arena became so infested with dubious “facts.” However it happened, we ordinary citizens don’t have time to separate the truth from the barrage of falsehoods. So I am grateful for public-interest research groups that watch the numbers for us.
One of the best is Citizens for Tax Justice. In the midst of confusing rhetoric about unfair taxes, flat taxes, tax surpluses, tax cuts, I turn to CTJ for tax facts.
They’ve just put out an interesting sheet about “tax freedom day.” That’s the symbolic date, we are told by those who foment about burdensome taxes, before which we all “work for Washington,” after which we get to “keep our money for ourselves.” They give the impression that that day occurs sometime in April, creeping toward May. Soon, they imply, we’ll be vassals of the government for half the year.
One problem with that claim, of course, is that the government is not some alien force separate from us — we do live in a democracy. Another problem is the implication that tax money goes down some rat hole, instead of paying for things we want and use, such as highways, national parks, toxic waste cleanups, disaster relief, Medicare, or that defense contract that creates jobs in our district.
(Okay, since we’re on a truth-sorting mission here, let’s admit that some tax money does go down rat holes, and that our democratic representatives don’t listen to us nearly as much as they listen to folks who give big campaign donations. I always wonder why the anti-tax folks don’t fix those faults in our democracy, instead of obsessing about tax cuts. But this column is going another direction: toward the skew they put into the statistics about “tax freedom day.”)
If, starting January 1, you had to pay the government every penny you earn, until all your federal income tax was paid for that year, guess what day that would be.
CTJ shows that the answer depends on your income. If you earn less than $13,600, you’re in the lowest fifth of income earners, and you’re free on January 1. You pay no income tax. You do owe Social Security, Medicare, cigarette, gasoline, and other federal taxes, which you will pay off (on average $756, or 8.8 percent of your income) by February 1.
If you’re in the next fifth up (income $13,600 to $24,400), your income tax freedom day is January 4. Your total federal taxes are paid by February 24. On average you are dunned $2,854, 15 percent of your income. Nearly all of that is for Social Security and Medicare.
If you’re in the literal middle class, the middle fifth of taxpayers, you earn between $24,400 and $39,300 per year. Your income tax freedom day is January 21; your total federal tax freedom day is March 13. You pay on average $6,195 in federal taxes, about 20 percent of your pre-tax income. Just over half of it goes for Social Security and Medicare.
At this point we’ve covered 60 percent of tax payers, and income tax freedom day hasn’t yet extended into February. It does so for the earners in the fourth fifth ($39,300-$64,900). They would pay their total income tax by February 3, their total federal tax by March 27. They pay on average $12,047, about one dollar out of every four they earn.
So for 80 percent of us, income tax freedom day comes no later than early February. Most of our federal tax goes to Social Security and Medicare, a category the virulent cutters never talk about cutting. Of course, the bottom 80 percent is not the group they worry about. They are focused on, they themselves are part of, and they are funded by, those who are in the top 20 percent.
CTJ splits this top one-fifth apart, because it covers such a wide range of incomes. For the next 15 percent up the ladder (incomes between $64,900 and $130,000), income tax freedom day comes on February 16; total fed freedom day on April 8.
It’s only the top 1 percent (income over $319,000) that have an income tax freedom day as late as March 30; a total freedom day that reaches into May. These privileged households, average income $915,000, pay on average $339,000 in federal taxes. This top 1 percent earns 18 percent of all the income in the country, and pays 25 percent of all federal taxes.
What we have, in short, is slightly progressive taxation, somewhat higher for the rich than for the poor. It is based on the classic economic principle of diminishing marginal utility. You spend the first dollars you earn on items of highest utility — necessities. Being rational, as you earn more, you spend down your priority list, most important things first, least important last. It makes sense and it maximizes national utility to finance public goods more from the low-utility dollars of the rich than from the high-utility dollars of the poor.
Maybe the loud tax-cutters honestly don’t know the facts. Maybe they purposely distort the facts to keep us from noticing that every cut they advocate undermines progressivity. Whatever the case, 80 percent of us have no earthly reason to pay attention to them, and the remaining 20 percent, if they see how they benefit from living in a society with educated children, research and development, law and order, and other public necessities, shouldn’t pay any attention to them either.