A Stitch in Haste

The Tax Foundation provides an update regarding the sharp progressivity of the federal income tax:

[R]oughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability. That's out of a total of 136 million federal tax returns that will be filed. Adding to this figure the 15 million households and individuals who file no tax return at all, roughly 121 million Americans -- or 41 percent of the U.S. population -- will be completely outside the federal income tax system in 2006. This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more.

Some hasty stitches:

--The 41% figure is understated because it includes children claimed as dependents. If one thinks strictly in terms of the adult labor force, then the percentage is much higher -- around 50%.

--These numbers do not reflect Social Security taxes. Whatever fraction of these 121 million Americans -- who, remember, tend to be relatively poor -- actually work for a living may be spared an income tax burden, but not a Social Security tax burden. Yet, of course, the best way to help the poor is by not taxing them. This long, broad and deep contradiction in the concept of "Social Security as a safety net" is never, ever addressed by the apologists for the status quo.

--Similarly, those who advocate either a "flat tax" or a national sales/consumption tax are, perhaps unknowingly, advocating taxing these (currently untaxed) lower-income people. Either that, or any "simpler, fairer" system would have to be made just as "not simpler" and "not fairer" as the current system -- to be riddled with exemptions, deductions, preferences, rebates, subsidies, etc. -- all to be government by the Politics of Pull. And remember, without an express repeal of the Sixteenth Amendment, going from an income tax today to sales tax tomorrow will inevitably end with both the day after tomorrow.

--The report includes data by state. Those with the lowest percentage of taxpayers are (unsurprisingly) Mississippi, Louisiana and Arkansas. Equally unsurprising are the top three: Alaska, Massachusetts and Connecticut (but see here).

--More generally, those who lament that "taxes aren't progressive enough" or that "tax cuts only benefit the rich" should be pinned down: Just how progressive, precisely, would you like to see the tax burden become? "Just more progressive than it is now" is not an answer.