Friday, September 10, 2010

Fighting disinformation: the bottom half pays federal taxes

How many times have you heard the statement, “The bottom half of the US income distribution pays no federal income taxes?”  I may even have written it myself, but you hear it most from right-wingers who like to bash the lazy and stupid American worker.  (Remember, your faithful correspondent is an apostate from any and all organized political parties, and therefore totally objective… if anything, I am a classical liberal, who believes that the economy fundamentally reflects a society’s values.)

The statement is true in a narrow sense, but totally false in the context of the American tax system.

Everybody who works pays about 12.4 percent out of their paycheck to Social Security, which, as almost everybody knows, is a federal income transfer program, not a savings account.  Their employer pays part, totaling 12.4 percent.  And, mirabile dictu, even though right-wingers love to talk about the purity and justness of flat taxes—on all income, one presumes—the payroll tax has a ceiling:  income over about $106,000 is excluded!

So the main point I am making is incontrovertible:  the bottom half is taxed at a 12.4 percent rate.  The bottom half pays federal taxes.  Period.

Should we lift the ceiling?  As this piece points out, that would soak the hard-working upper middle class the most, those households between $106,000 and the top two percent level, approximately $250,000.

But that problem can be solved by lowering the rate overall and lifting the cap (and possibly lower explicit federal tax rates on the upper middle class between $106,000 and $250,000).  It’s just a matter of arithmetic.  There’s a ton of money at the top.

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