April 25, 2007

Prize for Most Ridiculous Statements on Taxes

Now that tax filing season is over, we can look back and decide who gets the award for saying the most ridiculous things about our tax system. Surely one prize goes to Ari Fleischer, the former White House press secretary who is distraught that taxes are too progressive.

Writing in the Wall Street Journal, he selectively focuses on the most progressive part of the tax system, the federal income tax, and ignores other federal taxes and state taxes, which are generally regressive. He writes that the top 40 percent of taxpayers are paying 99.1 percent of all income taxes and the top 10 percent are paying 70.8 percent of all income taxes. Fleischer seems to find this simply unfair and also worries that America thinks it can simply keep piling on more taxes on the rich to fund services for everyone, a dynamic that cannot last in his mind.

As Citizens for Tax Justice explained in a 2004 analysis, once you consider the impact of regressive federal payroll taxes and state taxes (which are often regressive because of the effect of sales taxes that hit the poor the hardest) the share of taxes paid by the wealthy overall is not so outrageous. For example, CTJ found that the wealthiest one percent of taxpayers was paying 20.8 percent of taxes overall and that this group also had 19.1 percent of the total income. So the tax system as a whole is really flat or just barely progressive in light of this. Yes, the federal income tax is progressive, but it has to be to counter the regressive effects of other taxes.

Fleischer particularly singles out the federal Earned Income Tax Credit as contributing to this unfairness. Remember what President Reagan, that left-wing firebrand, said of the EITC, "It is the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress." We could also add that it simply counteracts the unfairness of other taxes. For example, in many states, low-income taxpayers actually pay a larger percentage of their incomes towards taxes than the wealthy. Federal and state EITCs counteract this unfairness.

Fleischer doesn't even try to address state taxes but he does attempt to deal with payroll taxes. He claims that since payroll taxes are paying for Medicare and Social Security (which is fairly progressive in its benefit structure) these shouldn't really count as regressive taxes. But anyone who is even casually familiar with the federal budget process can doubt that Social Security taxes are really going to pay for Social Security. Right now we're all paying more Social Security taxes than are needed to pay for the benefits of current recipients, but this surplus is has actually been used to finance the Bush tax cuts.

The President and the Democratic leaders in Congress have both talked about achieving a budget surplus in 2012, but CTJ has argued before that this can only be true if you assume we will use up the Social Security surplus on non-Social Security spending or tax breaks (among other things). That money was supposed to be used to pay down the debt, which would free up money needed to pay benefits when the baby boomers retire in large numbers. If we keep spending the Social Security surplus, Congress will either have to raise taxes or cut the benefit program that Fleischer says is such a good deal for low-income people. In other words, it doesn't necessarily make sense to say that the regressive nature of payroll taxes should be dismissed because they go towards Social Security and Medicare.

Fleischer seems to think that democracy itself is threatened by the federal income tax. He writes

If, as now happens, 60% of the people in our democracy can force 40% to pay the bills, what's to stop 65% from making 35% pay it all? Since no one wants to pay taxes, what's to stop 90% of people in a democracy from making 10% pay it all? Or why not let 99% of the country off the hook, as long as the remaining 1% picks up the tab?

Is America about to enslave it's wealthy? Certainly not during this administration. By 2010, over half of the Bush tax cuts will go to the wealthiest 5 percent of taxpayers. If you consider the additional national debt caused by the tax cuts and assume Americans will have to pay it off at some point, you find that this debt outweighs the tax breaks for all but the richest 1 percent of taxpayers, because their tax breaks have been so huge.

We're hardly at the point where pitch fork-wielding populists have taken over the Congress and thrown the rich out of their mansions. The fact that Fleischer can even make these claims seriously in a paper that is (if nothing else) widely read shows the level to which our political discourse has sunk.


At 8:26 AM, Anonymous Anonymous said...

Do we know yet what different forms AMT relief might take?



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