Tax Analysts Blog

In Praise of Shared Responsibility

Posted on Jul 7, 2009

Nobody enjoys paying taxes, but you must admit that our tax revenues pay for a lot of great things with redeeming social value. Things like public libraries, transportation infrastructure, and a military to protect us from crackpots like North Korea's Kim Jong-Il. (I'll conveniently overlook the fact that our tax dollars also paid for Barry Manilow's appearance at the Independence Day concert on the National Mall this past weekend.) For the most part, at least, our taxes are put to good use.

Let's focus on the concept of shared responsibility. The appeal of a shared burden strikes a chord in each of us. It harkens back to fundamental notions of fairness we learned as children. When something important needs to get done for the common good, everybody must pitch in and do their part. No free rides. It's the right thing to do.

So shouldn't everyone share in the collective tax burden? They should, but that's not the case. Not even close. A major failing of the U.S. income tax system is that a shockingly large percentage of the population is currently NOT sharing in the responsibility. This isn't a theory, it's a fact. About 30% of American households pay no income tax at all. That statistic astounds a lot a people when they first see it; many think it must be a mistake or some sort of typographical error. But it's not.

A few caveats to note about the statistic:

• First, the number is accurate but not precise. The actual number of tax-free households may be a few percentage points higher or lower. But for purposes of arriving at a ballpark figure, it's a legitimate estimate.

• Second, the figure looks at income tax, as opposed to payroll taxes. The latter includes things like employee social security contributions that are deducted from pay checks and often confused with income taxes.

• Third, this vast community of non-taxpayers do not occupy the upper reaches of the income spectrum. We're talking about poor folks here.

• Finally, the community of non-taxpayers expands to about 40% once you consider the various refundable tax credits allowed under current law.

No, you did not misread that; two-in-five U.S. households pay no income tax on net. What kind of a misfit tax system lets 40% of the public off the hook? Where is the shared responsibility? What if 40% of the public couldn't use public libraries, public schools or public transportation? There would be a riot ...and rightfully so.

If I've done my job properly, you should be experiencing a visceral outrage right now. You might even be inspired to stick your head out the window and scream that you're mad as hell and not going to take it any longer. EVERYONE needs to pay. EVERYONE needs to share in the tax burden. That isn't to say a progressive income tax doesn't have it's proper place. I'm no flat taxer. Bill Gates should obviously pay more tax than a minimum wage worker. What I am suggesting is that anyone who is seriously looking at tax reform should be mindful that the concept of shared responsibility is absent under current law.

In the past, fixing this problem was the rallying cry of the few. Today, broadening the tax base needs to become the rallying of the many. It's a matter of sheer necessity. We live in a time of exploding federal deficits and chilling national debt projections, as economist Marty Sullivan has astutely and repeatedly pointed out. A fiscal crisis of epic proportion is looming unless something is done, and soon. It's entirely unreasonable -- not to mention mathematically impractical -- to think that we should look at the 60% of households currently paying income taxes and require that they (alone) pay more.

So how do we do it? How do we get all American's -- yes, even the poor -- to pay some modicum of tax? The current system ain't getting it done; not by a long shot. Maybe it's time for a paradigm shift. (To be continued.)

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