Paul L. Caron

Saturday, April 7, 2012

Hamilton Project: The Truth about Taxes -- Just About Everyone Pays Them

The Hamilton Project, The Truth about Taxes: Just About Everyone Pays Them:

A popular myth swirling around Washington, DC, and throughout the media these days is that many Americans do not pay taxes, and are therefore free-riding off of our society without contributing themselves. This has even been referred to by some as a “new orthodoxy.” The origin of this misconception is the observation that only about 54% of American households paid federal income taxes during recession-affected 2011. But that statistic is misleading because it provides an incomplete picture of the overall tax burden on American families, and because it incorporates individuals who naturally shouldn’t be paying taxes because of their age or economic circumstances due to the Recession. A closer look reveals that nearly all Americans do, in fact, pay taxes. ...

[M]any households with no tax liability are young or old, meaning that they are likely to be led by students who subsequently will pay taxes or retirees who paid taxes over their lifetimes. The figure below illustrates the relationship between age and the odds of paying payroll and income taxes. The graph makes clear that younger individuals -- those in their late teens and early 20s -- pay taxes at relatively low rates, but that is largely because they are in school and not working. But as they get older and find jobs, the evidence suggests that they will pay taxes. Similarly, after age 60, when more and more Americans are retiring and leaving the labor force, the fraction paying taxes falls rapidly. These retirees have certainly contributed to America’s revenue stream over their lifetimes. To this point, as the U.S. population ages into the future and a greater proportion of Americans reach the retirement age, it is inevitable that a growing percentage of the overall population will pay no income or payroll taxes.

But during middle age, almost all workers face a tax burden. When looking at those in middle-age, 84% faced a net payroll and income tax bill in 2007. This general theme also holds true for low-income households: even households that receive the child-related EITC generally only receive it temporarily, usually when their children are young. On net, even these families face a positive tax bill over time.

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The writers fail to realize that the political lie they are uncovering is not that most people arent paying taxes, but that the payroll taxes are not contributions to a social security trust fund for their retirement but rather a tax to pay for people currently retired. Eventually the third rail is going to elecrocute the entire country.

Posted by: Thomas Carden | Apr 9, 2012 4:20:55 AM