Progressive policy proposals continually face problems rooted in the profound ambivalence – and often equally profound misinformation – that Americans have regarding taxes. And filling out complicated tax forms this time of year often tips the balance negatively – even though most federal income tax filers get a refund, usually a source of joy.
Ultimately, there’s strong support for the bedrock progressive view that the rich and corporations should pay more. But there’s also a fog of ignorance, ideology and deliberate obfuscation from conservatives and many elite opinion makers that envelopes people’s thinking about taxes – and often by implication about what government can do.
On one hand, from New York Times/CBS News polling data released today, a solid majority of Americans – 61 percent – say their own federal income tax bill is fair, and only 35 percent say it’s unfair. When asked if the benefits of government programs like Social Security and Medicare are worth the cost, they’re even more positive: 76 percent – and even 62 percent of Teabaggers – say they’re worth it.
But given a choice of a smaller government with fewer services or a bigger government providing more, 50 percent opt for a smaller government, and only 37 percent favor more. Then here comes the ambivalence: When those favoring smaller government are asked if they want less government if it means cuts in spending on Social Security, Medicare, education or defense, 36 percent of those ideologically predisposed to small government say no, not at that price.
Confusion about budget deficits feeds the ambivalence. Most people – understandably but incorrectly – use their household budgets as a model for thinking about federal budgets. (Even then, they forget that for households it may make sense to borrow for children’s education, their own retraining, opening a business, or buying a home or car, and government borrowing for investments with long-term payback makes sense.) So even in the midst of high and persistent unemployment, 42 percent of those surveyed by the Times (and 76 percent of Teabaggers) favored reducing the budget deficit over spending to create jobs. On the positive side, however, half favored spending on jobs.
Then comes the confusion: 47 percent want to cut taxes rather than reduce the deficit (the choice of 45 percent), even though cutting taxes would, in the short run, certainly increase the deficit. (Direct spending on job creation, financed by a bigger deficit, would be a better strategy than cutting taxes as a way of generating jobs.)
Partly these responses reflect a longstanding observation about Americans as ideologically conservative, operationally liberal – and thus politically ambivalent.
Most people seem not to know how much the average household pays in taxes but tend to overestimate. (The point is not that they’re ignorant — I had to dig around for the figures – but that there’s a tendency to exaggerate the tax “burden” on many people.) While nearly a third of respondents in the Times poll didn’t know, 38 percent estimated that most household paid 20 percent or more of their income in federal income taxes.
But the average federal personal income tax rate is only 7.9 percent for all households (and just 16.1 percent for the richest 1 percent). Only about 5 percent of households paid 20 percent or more – barely more even for the richest – of their incomes for all federal taxes, not just income taxes, according to an analysis by Citizens for Tax Justice (CTJ).
On the other hand, the political right has had a field day with the factoid that 47 percent of households pay no federal income tax, often inaccurately shortened to paying “no federal taxes.” Their outrage feeds into one of the touchiest issues surrounding taxes: To what extent should tax policy deliberately redistribute income from the rich to the broader, less affluent citizenry? (Anti-government teabaggers in the Times poll — richer, older, whiter, better educated than the broader sample — were much more likely than others polled to believe that Obama’s policies particularly helped the poor and African-Americans and, therefore, angrily oppose him.)
Federal income taxes are one of the few progressive taxes we have, though far less so than in the past, so it’s hardly surprising many lower-income families don’t pay federal income taxes. But other federal taxes – like the payroll taxes for Social Security and Medicare – are somewhat regressive, and most state and local taxes are at least somewhat regressive, meaning that they take a disproportionate share of the income from the less well-off.
So when all federal, state and local taxes are combined, taxes in the United States are only slightly progressive overall. The poorest 20 percent pay 16.0 percent of their income in taxes, the middle 20 percent pay 25.3 percent, and the richest quintile pay about 31 percent, according to CTJ. Looked at another way, the middle quintile earns 11.6 percent of the national income and pays 10.2 percent of all taxes. The top 1 percent earns 20.4 percent of national income and pays 22.1 percent of all taxes.
The American tax system overall is only very, very slightly progressive (and if the much higher rate of tax avoidance by the wealthy is taken into account, maybe not progressive at all). Conservative proposals for “flat taxes” would simply tilt a largely flat system against the less affluent majority.
The shift away from progressive taxation – or from responsibility for the common good from those who benefit most from society – has gone on not just during the Bush II regime but for 50 years, according to a report from Wealth for the Common Good, a group of business people and wealthy individuals, by Chuck Collins, Alison Goldberg, and Sam Pizzigati (who produces the weekly on-line newsletter, Too Much, that is indispensable for anyone interested in economic inequality). Federal income tax rates at the top dropped by two-thirds over the half century, while the middle class federal tax share has inched up.
And that understates the tax shift.
At the upper reaches of wealth, capital gains count more than income, and the top capital gains tax rate is down – from a high of nearly 40 percent in 1977 to 15 percent – far less than ordinary income rates which top out at 35 percent. Over this same time, capital income itself has shifted even more to the wealthy. According to the Economic Policy Institute, the top 10 percent of families in 1979 received 67 percent of capital income. By 2006, despite all the hoopla about an emerging “ownership society,” 81.3 percent of capital income went to the top 10 percent. And in one of the most egregious cases, ordinary income of hedge fund managers who have been making up to $4 billion a year during this financial crisis gets counted under an obscure category called “carried interest,” and is taxed at the low capital gains rate.
Over the last 35-plus years, the rich have taken a greater share of all income before taxes, even as they’ve been taxed at ever lower rates. As Collins and colleagues write,
In 2007, America’s top 400 averaged $344.8 million in income. A half-century earlier, in 1955, the top 400 averaged, in 2007 dollars, only $12.7 million. The bottom line: The incomes of America’s top 400 have multiplied, after inflation, by 27 times since 1955. But 1955’s top 400 paid over three times more of their incomes in federal income tax.
And as the AFL-CIO’s updated Paywatch website notes, in 1980 CEO pay at S&P 500 companies averaged 42 times pay of the average worker, but in 2009, at $9.25 million a year, they averaged 319 times the pay of the average worker in their companies (down, poor things, from the peak in 2000 of about 525 times the average).
Although 85 percent of Americans thought the middle class would suffer to reduce deficits, 60 percent – 82 percent of Democrats, 55 percent of independents, 42 percent of Republicans – think households making more than $250,000 a year should pay higher taxes, according to a March Quinnipiac University poll. But conservatives claim that there’s not enough in the rich folks’ coffers to pay the bills.
But ending the Bush tax cuts for those making over $250,000 would bring in $45 billion a year, Wealth for the Common Good reports. And a variety of other measures would push the total up to $450 billion, with added benefits, such as discouraging financial speculation. They include progressive taxes on very large estates, ending overseas tax havens, taxing financial transactions, setting a 50 percent top bracket for incomes over $2 million a year, and ending the tax preference for capital gains and dividends.
The ambivalence of Americans about taxes can be tackled. Make the system progressive. Show concrete benefits that go to the majority to help with their daily lives (not military contractors and Wall Street). The shrill, misleading voices of the right and many elite figures (many of whom are rich) may scare Democrats, who think they must turn to the rich for campaign funds, but fairer, more progressive taxation to help average families gain security, prepare for the future, and enjoy a richer public life is essential for any progressive program and political victory.
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David Moberg, a former senior editor of In These Times, was on staff with the magazine from when it began publishing in 1976 until his passing in July 2022. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.
