NCPA - National Center for Policy Analysis


January 27, 2009

The tax burden debate has been mischaracterized to the detriment of our most productive workers, says J.T. Young, who served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004.

The common perception is that the federal income-tax burden focuses on the upper-income part of the scale, while social insurance taxes -- Social Security and Medicare -- focus on the lower-income range.  However, the United States is not much less dependent on top earners for funding its social insurance programs than it is for its general revenues, says Young:

  • The bottom 51 percent of earners have a negative income-tax burden -- due to refundable credits such as the earned income credit -- but they still only shoulder 13 percent of total payroll tax revenues.
  • In contrast, the top 49 percent of earners pay 102.4 percent of income-tax revenues (making up for refundable credits' cost) but still pay 87 percent of payroll taxes too.

Judged as a ratio of their population percentage vs. their contribution percentage, the difference grows dramatically up the income scale, says Young:

  • The top 3 percent of earners pay almost 20 times their population rate in income-tax revenues and over five times their rate in payroll tax revenues.
  • The bottom 51 percent of earners contribute just one-tenth their population level in combined federal tax revenues.

While social insurance programs are regressive in their taxation, they are progressive in their distribution -- low-income contributors receiving a greater relative payout than higher-income contributors do.  This is possible only because of the top earners' disproportionate contribution, says Young.

This distributional examination also underscores how one-sided the tax debate has become.  Top earners are immediately transformed into "the wealthy" -- despite the fact that there is substantial lifetime movement up and down the income scale, says Young.

Source: J.T. Young, "Giving Most-Productive Their Due In One-Sided Tax-Burden Debate," Investor's Business Daily, January 26, 2009.


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