RALEIGH – The Left wants to argue that rich people don’t pay their fair share of taxes, that poor people pay more of their income in taxes than rich people do, that North Carolina’s tax system is particularly regressive, and that government budgeting as a whole has been manipulated to favor the 1% over the rest of us.
The Left’s problem is that none of these statements is true. None of them comports with reality. That’s why you usually hear leftists offer misleading anecdotes or emotional appeals rather than talk about numbers. That’s why you hear endless recycling of Warren Buffett’s unverified claims about his secretary’s tax burden rather than a full accounting of who pays what.
Unless, of course, you are a reader of this column. Because over the past few months I’ve armed you with the actual data that serve as a rebuttal for each of these claims. Let’s review them in turn:
• Rich people and fair taxation. If you total up all of the federal, state, and local taxes paid by Americans at all income levels, you will find that the wealthiest 20 percent pay about 31 percent of their income to government. But when asked what the maximum tax burden ought to be, most Americans say it shouldn’t be any higher than 20 percent, and an overwhelming majority of Americans (79 percent) say the maximum tax burden ought not to exceed 30 percent.
Therefore, the overwhelming majority of Americans believe that the tax burden of the wealthiest Americans is unfairly high – or, at least, that’s what they would say if they knew that the wealthiest Americans’ tax burden was 31 percent.
• Rich people vs. poor people in tax burden. According to the same analysis I cited above, conducted by the left-wing Citizens for Tax Justice, the poorest 20 percent of Americans pay about 16 percent of their income in federal, state, and local taxes. So the effective tax burden of the wealthy is about twice as high as the effective tax burden on the poor.
Perhaps you think that the tax burden of rich people ought to be three or four times that of the poor. You are entitled to your position. But you are not entitled to claim that poor people have higher tax burdens than rich people. America’s current tax system is highly progressive – more progressive than that of most European countries, by some measures.
• Tax fairness in North Carolina. For years, the Left has claimed that while the federal tax code may be progressive, state and local taxes in North Carolina are highly regressive. As I demonstrated back in November, this claim is false. Whether the Left has been actively misleading its audience over the years, or simply doesn’t understand its own data, is a matter I’ll leave to others to judge.
The truth is that if you look at state and local taxes alone – leaving out both federal taxes paid and federal tax deductions claimed – here are the effective tax burdens by quintile:
Poorest 20% of families – 9.5 percent
Next 20% (lower-middle) – 9.4 percent
Next 20% (middle-income) – 9.6 percent
Next 20% (upper-middle) – 9.7 percent
Wealthiest 20% of families – 9.1 percent
For 80 percent of North Carolina families, the tax burden varies little by income. The wealthiest 20 percent do have a slightly lower tax burden than the poorest 20 percent, by four-tenths of a percentage point. This does not constitute a “highly regressive” tax code. And it is more than offset by the top quintile’s substantially higher federal taxes, which now fund 36 percent of the total cost of state government in North Carolina, by the way.
• Government budgeting as a whole. The progressivity of government taxation isn’t the end of the story, of course. Poor, middle-income, and wealthy households are not equally likely to receive government benefits or services. Some programs, such as agriculture subsidies, redistribute income from poor and middle-income families to the wealthy. But not many. Most government programs redistribute income from the wealthy to middle-income and, especially, poor families.
In a 2007 study, the Tax Foundation accounted for all these tax and spending flows, and came to the following conclusion: the poorest 20 percent of Americans receive about $8 in government services for every $1 they pay in taxes. The wealthiest 20 percent of Americans receive about 41 cents in government services for every $1 they pay in taxes.
Hood is president of the John Locke Foundation.