WHERE DO OUR TAXES GO?



The federal government was once elegantly described by Ezra Klein as a big fat insurance company surrounded by a standing army. It's a useful quip, because our government is basically in the business of security. Social Security, income security, health care security for the elderly, poor and veterans, and guns-and-helmets security account for about 80% of government spending. That's what we pay for when we pay taxes. [CBPP]

WHO PAYS TAXES?

Here's something you've probably read: Half of Americans don't pay taxes. There's just one problem with this maxim: It's totally wrong. While it's true that around 50% of families don't pay a positive federal income tax, remember than an equal share of government revenue comes from payroll taxes. Practically all earners in their prime working years pay a total federal tax. [Hamilton Project]



DO THE RICH PAY FOR EVERYTHING?



The U.S. tax code is very complicated, but it follows one general rule (Buffett, notwithstanding): Richer people pay more. In fact, the top 1% pays more federal taxes than the bottom 60% combined. Is that outrageous? You might think so. But consider also that the top 1% also makes more than the bottom 40% combined. That's the thing about being rich in America: You make lots and lots of money and you get taxed at a progressive rate on it.



Here's another way to look at tax burden by quintile. The top 20% makes a little more than half the money and pays about two-thirds of the federal taxes. That's progressive taxation at work. Whether it's too progressive or not progressive enough is a debate for another post. [Tax Policy Center]



WHO PAYS NO INCOME TAXES?

Every April comes with a slew of stories about that horrible half of the U.S. population that pays no federal income taxes thanks to exemptions and tax credits. Who are these people? They are the poor. About 80 percent of the households not owing federal income tax earn less than $30,000 a year. Since 2000, the poorest 40% of households have averaged a federal income tax rate below zero. [The Atlantic]

DO AMERICANS PAY A LOT OF TAXES?

This is an impossible question to answer definitively. As Michael Linden of the Center for American Progress pointed out to me, the U.S. ranks in the bottom five among OECD countries in total government revenue as a share of GDP. We're just above South Korea and Turkey. We tax less than Australia, Canada, and just about every country in Europe. A fun way to look at this issue is to compare total tax rates on $100,000 of gross income across the developed world. Once again, we're behind most advanced countries when it comes to taxing even middle-class income. As for upper-class income ... keep scrolling. [The Economist]



ARE WE PAYING MORE THAN WE USED TO?



David Leonhardt and the graphics team from the Times put together this fascinating chart of effective tax rates -- that includes income, payroll, and everything else you pay to the feds -- across households, dating back to 1960. What they found is that tax rates have declined dramatically in the last 50 years for the very rich. The U.S. tax code is still progressive, but it's not nearly as progressive as it used to be. One reason that center-liberal softies like me argue that the rich can bear a heavier tax burden is that, for each of the last four decades, they've paid more and the economy has grown healthily. It's equally true that effective tax rates have declined for the poorest Americans, as well. [NYT]