Just in time for tax filing season, the Tax Foundation and Congress's Joint Committee on Taxation have compiled some useful facts about the federal tax system. Following are a few worth thinking about as taxpayers write their annual checks to Uncle Sam.
-- In 2005, the federal government took $2.4 trillion out of the pockets of the American people. To put this number into context, it is about the same as the size of the entire U.S. economy in 1959 in inflation-adjusted terms. Only two other countries on earth have economies as large as our federal government: Germany and Japan—and Germany just barely makes the cut, with a gross domestic product of $2.7 trillion. China, which everyone is so alarmed about, has an economy significantly smaller than the federal government, with a GDP of $1.9 trillion—about equal to what the U.S. raises just from taxes on individuals.
-- Contrary to popular belief, the vast bulk of federal taxes are paid by the wealthy. According to the JCT, in 2006, 53.7 percent of all federal income taxes were paid by those with incomes over $200,000. Those with incomes between $100,000 and $200,000 paid 28.3 percent of all individual income taxes. Thus those with incomes over $100,000 paid 82 percent of the total. They also paid 44.4 percent of all payroll taxes.
-- Those with incomes below $40,000 paid no federal income taxes at all in the aggregate; the positive liability for those who paid anything was more than offset by tax rebates from the Earned Income Tax Credit for many more who paid nothing. In total, the EITC put $41 billion into the pockets of low-income workers in 2005, 91 percent of it being paid to those with no income tax liability. However, according to the Tax Foundation, three-fifths of Americans believe that it is wrong for anyone to pay no taxes at all, that everyone should pay something to finance the government.
-- So-called tax loopholes—deductions and exclusions that reduce one's tax liability—are mainly used by the middle class, not the wealthy. The largest tax expenditures are the exclusions for pension contributions and health benefits for workers. Among the largest deductions are those for mortgage interest and state and local taxes. In 2005, taxpayers saved $62 billion in taxes due to the mortgage interest deduction, with 72 percent of that going to those with incomes below $200,000. The child credit saved taxpayers $46 billion—almost all of it claimed by the middle class. Just $8 million went to those with incomes over $200,000.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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