WASHINGTON ― If taxpayers are looking for someone to blame for federal deficits and the state of the U.S. tax code as the filing deadline approaches, a good place to start might be the mirror.
For decades, politicians from both parties have told Americans their federal taxes are too high, or even that they’ve been increasing. For their part, voters have been eager to believe them, making the promise of a “middle-class tax cut” a perennial campaign favorite.
President Donald Trump talked about it on the trail, and again last week: “The middle class has just been taken advantage of in this country for so many years,” he told Fox Business.
Yet for decades, that underlying premise has been wrong: Americans at almost every income level are paying a smaller percentage of their salaries in federal taxes than they were 10, 20 even 30 years ago.
Only the richest one-fifth of households are paying a higher percentage in federal taxes than they were a decade or two ago, and that’s only because of increases passed under former President Barack Obama to pay for his signature health care law.
Meaning that for liberals who support the idea of a progressive income tax ― one that imposes higher rates on the wealthy ― the promise of a middle-class tax reduction as part of a coming “tax reform” package could actually be a Trojan horse. Given House Speaker Paul Ryan’s (R-Wis.) longtime desire to lower the top rates, any reduction for middle and lower-income taxpayers would almost certainly be dwarfed by savings for the wealthiest.
“They keep saying: There are not going to be any tax cuts for the rich. Yeah, right,” said Roberton Williamson, with the liberal-leaning Tax Policy Center.
“It’s almost became a religious belief, a religious cult. Tax cuts are an elixir for everything. They are always good,” said Norman Ornstein, of the conservative-leaning American Enterprise Institute, who in recent years has grown critical of congressional Republicans. “And the lowest rates are best for the richest, since they drive the economy. Evidence is not a part of this.”
While supporters of Sen. Bernie Sanders (I-Vt.) may disagree, the tax code today already leans heavily on the country’s wealthy. The richest 1 percent of households in the nation pays 25 percent of all federal taxes. That includes personal income tax, payroll taxes, corporate income taxes and excise taxes – according to a 2016 analysis by the Congressional Budget Office.
The richest one-fifth ― whose average income in 2013, the latest year available in the CBO report, was $265,000 ― paid 69 percent of all federal taxes collected by the U.S. Treasury that year.
The middle 20 percent ― whose average household income was $69,700 ― paid 9 percent of all federal taxes.
That share of the total burden worked out to an average federal tax rate of 12.8 percent in 2013, compared with 13.6 percent in 2003, 17.2 percent in 1993, and 17.5 percent in 1983 ― immediately after President Ronald Reagan’s big first-term tax cuts.
That overall tax reduction is similar to other income groups: The poorest 20 percent saw their average federal tax rate drop from 8.7 percent in 1983 to 3.3 percent in 2013. The next one-fifth of households saw their federal tax rate drop from 12.8 percent to 8.4 percent.
Only the wealthiest one-fifth saw their average federal rate go up, from 23.8 percent in 1983 to 26.3 percent in 2013 ― but that was only because of tax increases under Obama following his re-election. That group’s tax rate had been 23.9 percent in 2012.
“We basically have had a downward ratchet, and haven’t raised taxes on the vast majority of people since the 1980s,” said Jason Furman, chairman of Obama’s Council of Economic Advisers during his second term.
Unlike Republicans’ push to repeal and replace the Affordable Care Act, which Democrats uniformly oppose, the idea of tax “reform” is one that could gain some Democratic support.
After all, the tax code and the Internal Revenue Service that administers it are almost uniformly disliked. Arguments to make tax law simpler and fairer sound attractive on their face ― a fact the Trump White House and its allies are counting on.
“Many Democrats have reached out to say that they want to help on this process too. They recognize it’s been 30 years since significant tax reform was done,” White House legislative affairs director Marc Short said recently. “I think there will be bipartisan interest to work on tax reform.”
Yet if Democrats do wind up agreeing to work for a tax package with the shared goal of “closing loopholes”…