NCPA - National Center for Policy Analysis

Taxes And The "Fairness" Issue

March 4, 1999

Opponents of tax cuts frequently bring up the fairness issue, contending that a 10 percent across-the-board reduction, for example, would be unfair to low-income families because they would see little relief -- while high-earners would benefit by tens of thousands of dollars.

But this argument overlooks the fact that those with modest incomes pay little if any federal income taxes now. Indeed, a large percentage have a negative tax liability -- which means they receive tax refunds from the government while paying no income taxes whatever. Moreover, a very high and rising share of the total tax burden is borne by those with higher incomes.

  • According to Congress's Joint Committee on Taxation, in 1998 families with incomes below $20,000 had a negative tax liability in the aggregate -- mainly due to the Earned Income Tax Credit, which is refundable if one owes no taxes.
  • Consequently, those with incomes below $20,000 received almost $12 billion in checks from the government last year -- and only 22 percent of them paid any federal income tax.
  • By contrast, those with incomes above $100,000 paid $437 billion -- or 62.4 percent of all federal income taxes.
  • According to the Congressional Budget Office, those with incomes above $200,000 saw their share of total income taxes rise to 37.2 percent in 1997 from 29.5 percent in 1993 -- although this group represents just 1.5 percent of all taxpayers.

The Internal Revenue Service reports that those in the bottom 50 percent of income distribution -- with incomes below $23,160 -- pay a mere 4.3 percent of all federal income taxes.

In short, the well-to-do receive a larger tax cut in dollar terms because they shoulder the vast bulk of the tax burden. Fairness, a number of tax analysts contend, lies in treating all taxpayers equally in percentage terms -- which means an across-the-board cut.

Source: Bruce Bartlett, National Center for Policy Analysis, "Why a 10 Percent Tax Cut is Fair," Wall Street Journal, March 4, 1999.

 

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