“It feels like the harder we work, the more they take from us,” said Mr.
Hicks, 55, as he waited for a meat truck one recent afternoon. “And it
seems like there’s an awful lot of people in the United States who don’t
pay any taxes.”
These are common sentiments in the eastern suburbs of St. Louis, a
region of fading factory towns fringed by new subdivisions. Here, as
across the country, people like Mr. Hicks are pained by the conviction
that they are paying ever more to finance the expansion of government.
But in fact, most Americans in 2010 paid far less in total taxes —
federal, state and local — than they would have paid 30 years ago.
According to an analysis by The New York Times, the combination of all
income taxes, sales taxes and property taxes took a smaller share of
their income than it took from households with the same
inflation-adjusted income in 1980.
Households earning more than $200,000 benefited from the largest
percentage declines in total taxation as a share of income.
Middle-income households benefited, too. More than 85 percent of
households with earnings above $25,000 paid less in total taxes than
comparable households in 1980.
Lower-income households, however, saved little or nothing. Many pay no
federal income taxes, but they do pay a range of other levies, like
federal payroll taxes, state sales taxes and local property taxes. Only
about half of taxpaying households with incomes below $25,000 paid less
in 2010.
The uneven decline is a result of two trends. Congress cut federal
taxation at every income level over the last 30 years. State and local
taxes, meanwhile, increased for most Americans. Those taxes
generally take a larger share of income from those who make less, so the
increases offset more and more of the federal savings at lower levels
of income.
In a half-dozen states, including Connecticut, Florida and New Jersey,
the increases were large enough to offset the federal savings for most
households, not just the poorer ones.
Now an era of tax cuts may be reaching its end. The federal government
depends increasingly on borrowed money to pay its bills, and many state
and local governments are similarly confronting the reality that they
are spending more money than they collect. In Washington, debates about
tax cuts have yielded to debates about who should pay more.
President Obama campaigned for re-election on a promise to take a larger share of taxable income
above roughly $250,000 a year.
The White House is now negotiating with Congressional Republicans, who
instead want to raise some money by reducing tax deductions. Federal
spending cuts
also are at issue.
If a deal is not struck by year’s end, a wide range of federal tax cuts
passed since 2000 will expire and taxes will rise for roughly 90 percent
of Americans,
according to the independent Tax Policy Center.
For lower-income households, taxation would spike well above 1980
levels. Upper-income households would lose some but not all of the
benefits of tax cuts over the last three decades.
Public debate over taxes has typically focused on the federal income
tax, but that now accounts for less than a third of the total tax
revenues collected by federal, state and local governments. To analyze
the total burden, The Times created a model, in consultation with
experts, which estimated total tax bills for each taxpayer in each year
from 1980, when the election of President Ronald Reagan opened an era of
tax cutting, up to 2010, the most recent year for which relevant data
is available.
The analysis shows that the overall burden of taxation declined as a
share of income in the 1980s, rose to a new peak in the 1990s and fell
again in the 2000s. Tax rates at most income levels were lower in 2010
than at any point during the 1980s.
Governments still collected the same share of total income in 2010 as in
1980 — 31 cents from every dollar — because people with higher incomes
pay taxes at higher rates, and household incomes rose over the last
three decades, particularly at the top.
There are now many more millionaires, in other words, paying more than
they did in 1980, but they are paying less than they would have if tax
laws had remained unchanged. And while they still pay a larger share of
income in taxes than the rest of the population, the difference has
narrowed significantly.
The trend can be seen by comparing three examples:
¶A household making $350,000 in 2010, roughly the cutoff for the top 1
percent, on average paid 42.1 percent of its income in taxes, compared
with 49 percent for a household with the same inflation-adjusted income
in 1980 — a savings of about $24,100.
¶A household making $52,000 in 2010, roughly the median income, on
average paid 27.7 percent of its income in taxes, compared with 30.5
percent in 1980, saving $1,500.
¶A household making $22,000 in 2010 — roughly the federal poverty line
for a family of four — on average paid 19.4 percent in taxes, compared
with 20.2 percent, saving $200.
Jared Bernstein,
who served as chief economist to Vice President Joseph R. Biden Jr.,
said the Times analysis highlighted the need to raise taxes on the
affluent and cut taxes for the poor. He cautioned that the middle class
most likely would need to pay more, too.
“When you look at these numbers, you understand why we’re not collecting
the revenue we need to support the spending we want,” said Mr.
Bernstein, a senior fellow at the
Center on Budget and Policy Priorities, a liberal research group. “We’ve really gutted the system.”
But
Douglas Holtz-Eakin,
a prominent conservative economist, said the changes in taxation over
the last three decades reflected a conscious and successful strategy to
encourage economic growth that should be reinforced, not reversed.
Mr. Holtz-Eakin, a former director of the
Congressional Budget Office who is the president of the
American Action Forum, said government should reduce deficits primarily through spending cuts, particularly to
Medicare and
Medicaid, the health programs that are the largest source of projected increases in the federal debt.
“We can’t grow our way out of it, and we can’t tax our way out of it,”
he said of the government’s fiscal predicament. “We have a spending
problem, period.”
Mr. Hicks, like many residents of Belleville, views this debate with
unhappiness. He would like the government to cut spending but not reduce
services. He is certain that the government should not raise taxes on
the middle class, a group in which he includes himself, but he is
ambivalent about asking anyone to pay more. Higher taxes would hurt his
businesses, he said, so raising taxes on those who make more money seems
likely to hurt their businesses, too.
“At this point, I guess it’s inevitable in order to get us out of this
hole,” Mr. Hicks said of higher taxes. “Illinois is in bad shape, along
with a lot of the nation. But I don’t feel like we should tax the middle
class any more than we are right now. There’s going to come a point
where they take the incentive out of working hard.”
If the government cut his taxes, Mr. Hicks said, he would use the money
to put a roof over the picnic tables outside the restaurant, expanding
the year-round seating area. He already employs 14 people; then he could
hire more.
And if taxes rose? Would Mr. Hicks, who started working when tax rates were higher, really choose to slow down?
He smiled. “No,” he said. “I like it. What else would I do with my time?”
Cutting From Both Ends
The federal income tax, which will turn 100 next year, is in decline.
Congressional Republicans and Democrats have repeatedly voted to reduce
the share of income that people must pay. Over the last decade, annual
revenues from federal taxation of individual and corporate income
averaged just 9.2 percent of the nation’s gross domestic product, the
lowest level for any 10-year period since
World War II.
The recession and new rounds of tax cuts further reduced revenues, to
7.6 percent of economic output in the 2009 and 2010 fiscal years.
Stronger economic growth has produced a modest increase in tax
collections, but the White House budget office estimates that
collections for the fiscal year that ended in September will total 9
percent of economic output, still less than before the financial crisis.
Federal spending, meanwhile, grew faster than the economy over the last
decade — particularly during the recession. To pay those bills, the
government borrowed more money than it collected in income taxes in each
of the last three fiscal years, something it had not done in even a
single year since World War II,
federal data show.
Congress could have eliminated those deficits by cutting spending. It
might also have averted those deficits by leaving the tax code
unchanged. The government on average would have collected an additional
$800 billion in each year from 2006 to 2010 if the 1980 code had
remained in effect and economic activity had continued at the same pace,
the Times analysis found. The annual federal deficits during those
years averaged $714 billion.
Leaving the tax code as it was in 1980, however, would not have solved
the nation’s long-term fiscal problems. Increases in federal spending,
driven primarily by the rising cost of health care, are projected to
outstrip even the revenue-raising capacity of the 1980 tax code in the
coming decades, necessitating some combination of spending cuts and tax
increases.
The income tax stands apart from other forms of taxation. It is the
reason that upper-income households pay a larger share of their income
in taxes than the rest of the population. The combined burden of all
other federal, state and local taxes takes roughly the same share from
all taxpayers. And many Americans — even in a middle-class, Democratic
stronghold like Belleville — have misgivings about imposing higher tax
rates on the affluent, an important reason that income taxation has
declined.
Some people in Belleville subscribe to the argument that higher tax
rates impede economic growth by discouraging investment. For others, it
is a matter of fairness.
Anita Thole, a middle-income safety supervisor for a utility contractor,
is not wealthy. She does not expect that she ever will be. She is a
single mother with a daughter in college, and she said she regarded the
wealthy with a mixture of envy and admiration. But she does not want
them to pay higher taxes.
“They work their butt off to get what they got,” she said. “I wouldn’t want them to pay more so that I can pay less.”
Do they work harder than you?
“What? No. I work my butt off,” Ms. Thole, 46, said. “But you got to
believe in the American dream. You got to love them for what they did,
for what they made of themselves and for being more aggressive than me.”
Ms. Thole, like many in Belleville, is also convinced that governments
could avoid raising taxes by adopting more frugal habits.
“There’s some days we stay home and we eat peanut butter,” she said.
What would she like governments to cut?
“I really like it when they cut the weeds along the highway,” she said.
“I like it when there’s good roads to drive on. The schools, I don’t
know, I don’t want to pull back from the schools. I don’t have the
answer of where to pull back.
“I want the state parks to stay open. I want, I want, I want. I want Big
Bird. I think it’s beautiful. What don’t I want? I don’t know.”
To Tax or Not to Tax?
William L. Enyart is a rarity in Belleville: he wants to raise his own taxes.
Mr. Enyart and his wife are lawyers, although for the last five years he
led the Illinois National Guard. The couple made $380,587 in 2011 and
paid $104,864 in federal taxes. His conviction that they should have
paid more may not be shared by many of the area’s higher-income
residents. But as the newly elected Democratic congressman for
southwestern Illinois, Mr. Enyart, 63, is also the only man in town with
a direct vote on federal tax policy.
Mr. Enyart, who won the seat of a retiring Democratic congressman,
campaigned in part on his support for Mr. Obama’s tax plan. He defeated a
Republican candidate who opposed it, 52 percent to 43 percent. But Mr.
Enyart said he heard little enthusiasm for tax increases in his
district. What has changed, he said, is that people are increasingly
concerned about cuts to government benefits and services.
“Nobody likes to pay taxes. Nobody wants to raise taxes on anybody,” Mr.
Enyart said. “But nobody wants to cut veterans services, nobody wants
to give up that Interstate highway, nobody wants — pick the service that
you like. These are necessary services, and they need to be paid for.”
The tax increase proposed by Mr. Obama, on taxable income — income after
deductions and other adjustments — above $250,000 a year, would pay for
only a small part of those services. It would reduce the projected
deficit over the next decade by a little less than 10 percent,
according to the Congressional Budget Office.
Nonetheless, Mr. Enyart said that he did not support broader tax
increases. The focus, he said, should be on requiring the rich to pay
more.
“We have the greatest disproportion of wealth since 1928, and I don’t
think that’s a healthy thing,” he said. “How much money is enough? Do
hedge fund traders really need to make a billion dollars a year and pay
only 15 percent in taxes when we have teachers making $50,000 and paying
20 percent?”
John Siemens, who did not vote for Mr. Enyart, said that kind of “raise
taxes” talk was a crowd-pleasing distraction from the need for painful
spending cuts.
Mr. Siemens and his wife, Jan, both 59, own a company with a pair of
factories in southwestern Illinois where workers assemble dollar-bill
scanners for vending machines, dashboard lights for automobiles,
magnetic probes for hospitals and other electronic equipment. They
earned about $250,000 last year, so Mr. Obama’s plan would not have
increased their income taxes. But it would raise the
estate taxes they would have to pay to pass the company to their children someday.
Like many opponents of the president’s plan, Mr. Siemens thinks higher
taxes will discourage investment and slow economic growth.
“There’s some tax rates that probably do need to be raised,” he said.
“There are some that need to be lowered. But the politicians are not
having an honest discussion. Is it fair or not fair is not the question.
The question is, If you want to raise revenues, does that make sense or
not?”
He noted as an example that interest on
municipal bonds is tax-exempt, which encourages the wealthy to lend to local governments.
“Those lower tax rates were put into place for a reason,” he said. “It’s not just, let’s give the wealthy a break.”
Mr. Siemens does have a concern about fairness. He believes that lower-income households are not paying enough in taxes.
“By any measure, the wealthy are still paying a disproportionate amount
of their income in taxes,” he said. “Is that fair or not fair? I don’t
know, but I have an issue with the dramatic reduction of taxes at the
low end because I think everybody needs some skin in the game.”
Mr. Enyart said that the state needed more revenue, but that it should
move to a tax system that imposed a heavier burden on high-income
households. Mr. Siemens said the state should have cut spending.
The higher taxes have increased his costs and given an advantage to
competitors in other states. And there are broader ripples, too: he said
he was planning to buy some used machines, rather than new ones, to
save money.
“We feel the burden of that, but it hasn’t gotten to the threshold of
pain yet where we would move,” Mr. Siemens said. “There’s a lot of
expense that would be incurred in moving, including a disruption of the
work force, which you are always loath to do.”
View From the Lower End
Taylor McCallister, 20, works the front window at Mr. Hicks’s barbecue
restaurant, taking orders from customers. She also works a second job
and attends Southwestern Illinois College. She earned about $30,000 last
year and, like her boss, she wishes the government would take less of
that money.
“When I see my check it’s like, damn, that’s a huge chunk that was taken
out,” she said. “I could have been making $450 instead of $378.”
But low-wage workers like Ms. McCallister still pay federal payroll taxes, which provide financing for
Social Security
and Medicare. They still pay sales taxes. Even if they are renters,
they still bear the cost of property taxes in the form of higher rents.
And those taxes have climbed most quickly in recent decades.
The average American in 2010 paid 30 percent more of income in payroll
taxes than in 1980, even while paying 27 percent less in federal income
taxes. As a result, revenue from the
payroll tax
almost equaled income tax revenue before a temporary payroll tax cut
took effect in 2011. The cut is scheduled to expire at the end of this
year.
The rise of the payroll tax reflects the general movement away from
requiring upper-income households to pay a larger share of income in
taxes. All workers pay the same Social Security tax on wages below a
threshold, which stood at $106,800 in 2010. The Medicare tax imposes a
single rate on all wages, without a threshold.
Some experts argue, however, that payroll taxes are a special case
because workers are entitled to Social Security benefits based in part
on the amounts that they pay in taxes — a system more akin to a pension
plan than an income tax.
In Illinois, the average burden of state and local taxes rose to 10.2
percent of income in 2010 from 8.8 percent in 1980, even before the
latest round of tax increases last year.
And Illinois, like most states, takes a larger share of income from
those who make less. Illinois households earning less than $25,000 a
year on average paid 14.3 percent of income in state and local taxes in
2010, while those earning more than $200,000 paid 9.4 percent, according
to the Times analysis.
Ms. McCallister said she and her friends worry about the nation’s
financial problems. Their answer is simple: Someone has to pay more, and
the affluent can best afford to do so. She said it was time to reverse a
trend that had been going on so long it predated her birth by a decade.
“I want to know honestly how the more wealthy feel,” she said between
tending to customers. “You’d think that they would want to help. We’re
working these kinds of jobs and that’s what we have to do to make it
through, and there’s other people making all this money. I don’t get it,
honestly.
“I feel that maybe people who don’t make as much shouldn’t have to pay as much in. But who makes the rules?
“Not me.”
n
Brazil, the mood is very different from Europe. We don't have a
recession, we have mild growth. Of course, we don't have the same high
standards of living as either Europe or the United States.
Matias Spektor é professor de relações
internacionais da Fundação Getulio Vargas. Trabalhou nas Nações Unidas
antes de completar seu doutorado na Universidade de Oxford.
