It’s time to put an end to the rumor that nearly half of Americans don’t have any “skin in the game” when it comes to paying taxes.
This popular claim of late among politicians both in Georgia and on the national stage is part of a broader narrative that government is creating a class of Americans overly dependent on public help, too lazy to work, and unwilling to shoulder responsibility. At the heart of this falsehood is a terrible misuse of cherry-picked numbers. The truth tells a very different story.
First, some quick background: the “nearly half of Americans don’t pay taxes” claim is based on a recent study from the nonpartisan and highly-respected Tax Policy Center of the Brookings Institution, which estimates that nearly 47 percent of Americans paid no federal income tax in 2011. A separate study by the right-leaning Tax Foundation found that the percentage of Georgians not paying federal income tax is particularly high, second only to Mississippi as of 2009. But while these numbers are technically correct, they can also be misleading and easy to manipulate. As one of the authors of the original Brookings report later said, “rarely has a bit of data been so misunderstood, or so misused.”
There are several reasons why. First off, the number only refers to federal income taxes, as opposed to all the other taxes that people pay. Everyone pays sales taxes and anyone with a job pays payroll taxes for Social Security and Medicare. Homeowners pay state and local property taxes regardless of whether they’re rich or poor, and anyone who drives a car gets taxed on gas.
Take all of those federal, state, and local taxes into account, and it’s clear that everyone has skin in the game. Our tax system is not divided between half who pay and half who mooch. Everyone pays something, and most pay between 20 and 30 percent of their income, according to the nonpartisan Institute on Taxation and Economic Policy.
Additionally, there are serious misconceptions about who those Americans not paying federal income tax actually are. According to the Tax Policy Center of the Brookings Institution, the same organization that penned the original “47 percent” study, more than half of non-payers are working adults who are not paid enough to owe federal income taxes, but still contribute payroll taxes for Medicare and Social Security. Another fifth are retired people, while most the rest are college students, unemployed workers, and the disabled—including many veterans with combat injuries.
Rather than being the stereotypical freeloader unwilling to work, more than half of non-payers are working adults who simply aren’t paid enough to owe federal income taxes. Ask them if they’d rather make enough to support their families, even if it means paying income tax, and the answer would definitely be a resounding “yes.”
Furthermore, because someone isn’t paying federal income tax today doesn’t mean they never did or never will. Working families get a break when their paychecks are down, so they can get back on their feet and start paying again when their incomes improve. Students have low tax bills while they’re in school, so they can get the skills to be gainfully employed taxpayers later on. And the elderly paid their fair share for decades, so they could live with dignity in retirement.
And, yes, there are more Americans not paying federal income tax than in the past. That’s because of the massive shock of the Great Recession: when people lose their job and incomes go down, income tax liability drops.
That’s as it should be. With bipartisan support, federal tax laws have been changed over the years to make sure people don’t pay income tax until they can afford to pay. That’s a formula for making people independent – not dependent.