Tax Analysts Blog

Who Pays? Who Cares? You Should

Posted on Feb 6, 2013

I am no fan of progressive taxation. I think it is a morally bankrupt idea. And I can never get anyone to explain how progressive is progressive enough. If a 40 percent marginal rate is fairer than a 35 percent rate – as the President maintained – wouldn’t a 50 percent rate be even fairer? There are people in the country that would emulate France and impose a 70 percent or higher marginal tax rate. There is no principle involved. It is a money grab fueled largely by jealousy.

And with that anti progressive opening, I want to congratulate the very progressive Institute on Taxation and Economic Policy (ITEP) for its recent report Who Pays? A Distributional Analysis of the Tax System in all Fifty States. The report shows, once again, that state tax systems are decidedly regressive. The poor pay for government; and they pay relatively more than the rich. That we make poor people pay a greater percentage of their incomes to support government than the wealthy is an abomination. Virtually every state is guilty.

A variety of factors contribute to this perverse system. States rely heavily on sales taxes, but exempt most of the purchases that the wealthy make. That is bad sales tax policy; the tax should fall on all final consumption. States rely heavily on regressive excise taxes. Excise taxes have their place. But states often use excise tax revenue for general funds. Since the rich do not smoke, drink, or drive more than everyone else, they pay a far smaller portion of their incomes in excise. The same can be said of the growing use of user fees and charges. The mildly progressive income tax system cannot overcome the damage done by unprincipled consumption taxes. All of this is explained in detail the report.

ITEP should be lauded for highlighting this problem. No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.

The ITEP “Who Pays” report is among the most important and valuable analyses of the current state tax system. The extremely talented Matt Gardner and Carl Davis and the other folks at ITEP do us all favor. We may not agree with their solutions. But we must recognize the problem.

Read Comments (6)

Falstaff @ The Boar's HeadFeb 5, 2013

Who pays? A probing question, indeed, but by no means the only inquiry at hand.
A thorough analysis of these issues would consider not only the distributional
burden of our tax system, but also the distributional benefit of our spending
and entitlement systems. One should examine the entire footprint of
governmental activity, not just the revenue side. Then, one could reasonably
argue the regressivity of our tax profile (as well noted by ITEP) is tamed by
the progressivity of our spending habits. Let the relevant measure here be
proportionality. This doctrine explains why the social welfare states of Europe
(who frankly seem to care more about their poor and disenfranchised than
Americans do) are so quick to embrace a robust consumption tax, despite its
notorious regressivity. Would not the ideal balance be an equilibrium between
burdens-in and benefits-out? So yes, po' folk pay more tax than they should.
But do they proportionally get more back from the state? Therein lies the crux
of the matter.

Brother TheloniousFeb 5, 2013

"No fan of progressive taxation." What blasphemy is this upon my ear? This is
me crying :(

West Coast OffensiveFeb 5, 2013

It sounds like you don't actually think progressive taxation is morally
bankrupt, contrary to your assertion. A few paragraphs later you contend there
is 'no justification' for asking the poor to pay more than the rich. That
strikes me as fully consistent with progressive taxation. Are you really saying
progressivity is entirely subjective and thus arbitrary. The French think 75%
is fair, while Americans think 39% is too high. If so I agree with you, these
considerations are unavoidably subjective.

lucas rachubaFeb 6, 2013

"No matter your views on government, there is no justification for asking the
poor to pay more than the rich."

The poor are not taxed more than the rich. The people who are taxed the most
are the people in the middle who make a decent living but don't have
significant capital gains.

And sure there is a justification - it is an incentive to get rich. If you
knew that you could keep an increasing share of each additional dollar,
wouldn't you work harder?

David BrunoriFeb 6, 2013

Falstaff, Good point. But a lot of state government spending inures not to the
poor but to the middle class (teachers, etc.) and government contractors. I am
not sure regressive taxes can justify such expenditures.

David BrunoriFeb 6, 2013

West Coast, I have two problems with progressive taxes. First, I am not sure
what gives anyone the right to take the rich guy's money and give it to someone
else. Second, there is nothing more subjective (to which I think we agree).

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