Oct 18, 2011
Taxes and discontent seem to go together.
Just take a look at two blogs that have grown wildly popular over the last few weeks. The “We Are the 99 Percent” blog has Occupy Wall Street’s driving concern about inequality, that 1 percent of the population holds one-third of the wealth. While the very nature of Occupy Wall Street has made its goals a challenge to parse, attacking that inequality by higher taxes on millionaires and corporations has been a theme of a lot of the protests. A new Congressional Research Service study shows one in four millionaires pay less in taxes than middle-class people.
By contrast, the We Are the 53% blog expresses frustration by “those of us who pay for those of you who whine about all of that.” For many people, the idea that substantial numbers of Americans (47 percent) don’t end up paying income tax is just wrong.
You don’t have to spend a lot of time on either of these blogs to realize that the frustrations are about a lot more than taxes. If you read the signs people are holding up to the camera, you can see both blogs draw on people who are struggling to get by economically. They’re people who feel they have done what they’re supposed to do in life, and yet someone else is getting the benefits. That’s a concern that goes way beyond a tax bill.
But there’s a question here that’s specifically about taxes and absolutely worth the public’s consideration: who should pay taxes?
Clearly these two groups are going in opposite directions on what the answer is. It’s not a small question, and it’s one that frequently causes our political leaders to punt. The current tax system may be awful, but we need to face up to how it got that way. It’s a result of a whole series of choices we made as a nation.
The fact that many people end up not owing any income tax is because of deliberate decisions we’ve made to let them off the hook. People who don’t pay income tax are either (a) poor or (b) have deductions that cancel out their tax bill, particularly tax credits for the elderly, children and the working poor. We can put them back on the hook if we want. But that will increase the burden on people who are poor, elderly, or both.
As the Tax Policy Center, which did the original calculation, points out, people who don’t end up owing income tax are still paying payroll taxes for Social Security and Medicare, as well as state and local sales and property taxes. Unless you have a Siddhartha-like ability to sit and do nothing but meditate for days on end, it’s hard to avoid paying taxes at all.
The wealthy largely benefit from another set of deliberate choices, many of which are driven by a belief that investment income should be taxed at a lower rate because (hopefully) it creates jobs and economic growth. As a practical matter, corporations benefit from a system that, while it has a fairly high tax rate, is also so filled with exceptions and loopholes that few of them end up paying that rate. Essentially, the companies with the best lawyers and accountants win.
We can revisit those choices anytime we want. But we should go back to fundamentals when we do it. That includes questions like: What does fairness look like? What helps the economy? And are we all agreed on the goals?
This, actually, is the hard part. Taken one by one, those decisions may sound good, but rarely do we step back and look at the big picture. The anger and frustration that we’re seeing — on both sides of the political spectrum — is also an opportunity to revisit those questions, to start a discussion on who should be taxed and why.
Because if we don’t have that consensus, we’re not going to be able to have a tax system that makes sense.
Scott Bittle is a senior fellow at Public Agenda, a partner in Choosing Our Fiscal Future. With his colleague Jean Johnson, he’s co-author of “Where Does the Money Go: Your Guided Tour to the Federal Budget Crisis” and “Who Turned Out the Lights? Your Guided Tour to the Energy Crisis.”