One of the greatest lies, one of the most common talking points on the right, is that "nearly half of Americans pay no taxes." I don't know how many times I've heard it, even from people who should know better.
Of course, what they are talking about is net federal income taxes ONLY, not including payroll taxes, state and local taxes, and so on. The federal income tax is one of our few progressive taxes, and even so it is much less progressive than it used to be (and of course, the economy did much better back when taxation was more progressive).
State and local taxes are quite regressive with respect to income, and everyone with employment pays payroll taxes, which are very regressive. With respect to total taxation, our whole tax system is barely progressive, and it is regressive at the highest income levels.
All this is with respect to income. But why do we measure regressivity against income alone? What about wealth or net worth, which is also a factor in ability to pay?
In the Citizens for Tax Justice link here and above, you can see the relatively mild progressivity of total taxation (state, local, federal) with respect to income:
Average Income Percent of Income Paid in Total Taxes
Bottom 20% $12,500 16.2%
Second 20% $25,300 20.7%
Middle 20% $40,700 25.1%
Fourth 20% $66,300 28.5%
Next 19% $140,000 30.8%
Top 1% $1,254,000 30.0%
I guarantee you that 16.2% hurts more than what the top 1% pay.
But again, this doesn't take into account wealth, and wealth inequality is much greater than income inequality in our nation.
The table below is my back-of-the-envelope rework of the table above if calculated with respect to wealth or net worth of households. Besides the tax figures above, I used the wealth distribution figures from the Norton and Ariely study that found that Americans have no idea how concentrated wealth is in our nation (most Americans think wealth inequality is much less than it is, and most Americans, even Republicans, would prefer that wealth be more evenly distributed than they think it is). I used a recent figure of about $57 trillion in total private wealth of U.S. households, and an estimate of about 113 million households. The result is this:
Average Wealth Percent of Wealth Paid in Total Taxes
Bottom 20% $0* infinite %
Second 20% $5,000 104%
Middle 20% $102,000 10.0%
Fourth 20% $274,000 6.9%
Next 19% $1,300,000 3.3%
Top 1% $17,600,000 2.1%
*The Norton and Ariely study attributed 0.1% of total wealth to the bottom 20%, but other sources suggest there is on average no or negative net worth at this level. Zero is a fair estimate here.
So, the bottom 40% of Americans pay more in taxes each year than their total wealth, while the top 1% pays only 2.1% of its wealth in total taxes each year. With respect to wealth, we have an extremely regressive tax system. But why do we never look at it this way?
The right wing loves flat taxes, right? Well, how about this: a 4% flat tax on household wealth each year by my calculations would be more than enough to replace ALL other state, local and federal taxes as described by the tables above! (Taxes would go down for over 80% of Americans, and would approximately double for the top 1%.)
I'm not really proposing that we scrap all other taxes in favor of a wealth tax, but truth be told, it would be more fair than the system we have now. We do need to move our tax system in a more progressive direction. And if we are going to measure how progressive or regressive our tax system is, we need to consider total ability to pay, which is a combination of income and wealth, not income alone.
As an example, think of two well-off but not top 1% households:
Household A: No net worth (debts = assets), two salaries of $100,000/year each.
Household B: Net worth of $5 million, investment income of $200,000/year.
Both households have the same income of $200,000/year, but in one case this comes from two individuals working, with likely hardship if either lost his or her job, while the other household lives off of investment income and does not need to work at all. Household B obviously has a greater ability to pay taxes, yet Household A would be taxed more heavily under our current tax system. If Republicans got their way, Household B would hardly be taxed at all.
Seriously, it is the wealth inequality in our nation that is the greatest problem. Excessively concentrated wealth also concentrates power excessively, threatening both democracy (think of our essentially purchased elections) and the health of our economy (the wealthy hoard money and use it for power rather than spending it as those less well-off do, feeding back into the economy and creating jobs by demand).
And the wealth inequality described above does not reflect the even more extreme inequality in financial assets only (the bottom 80% own only 7% of financial assets), tax evasion by the wealthy, assets hidden by the wealthy overseas, control of media by the very wealthy, control of foundations and nonprofit institutions by the very wealthy, or all the other advantages that the aristocracy of wealth have in this nation even apart from money itself. The class structure in the United States is now more rigid than in most of Europe, as studies of social mobility show. The reality of this extreme and persistent wealth inequality is a big part of why the Occupy movement has tapped into such passion among the 99%. Pick your word: aristocracy, oligarchy, plutocracy, kleptocracy--it isn't an exaggeration to say that is what we have become.
If we aren't going to tax wealth on an annual basis, we should at the very least tax wealth significantly when it passes to heirs, who clearly did not have any role whatsoever in earning that wealth (of course NO wealth is earned by any person alone, apart from the roads, courts, workers, and so much more that makes it possible). That is why the estate tax should be increased, not eliminated. It is not just a matter of justice, and it isn't about "punishing" the rich or anyone else. it is a matter of the survival and health of our democracy.
And I should add that it is not enough to have a more fair system of taxation, if those taxes are just used for the wars of the 1% (fought by the 99% or below), an enormous prison system, and corporate welfare and bailouts (socialism for the wealthy). Worthwhile taxes must be used for true investments--things that pay off for the whole economy in the long run--such as infrastructure, education, research, health care and a safety net that give everyone a chance, environmental protection, and so on.
Do this, and our economy and democracy will thrive again. Fail to address the toxic inequality of wealth in our nation, and in the end we will all crash and burn.