Tax Breakdown Shows Who Really Pays the Most

Citizens for Tax Justice (CTJ), a research organization advocating for the development of a fair tax system, recently released an aggregate view of Who Pays Taxes in America. The report corrects the common misconception that many lower income Americans do not pay taxes while higher income earners shoulder the burden of taxes. While it is true that the federal personal income tax is a form of progressive tax, meaning that those with a higher income pay a higher percentage of their income in taxes, the overall tax system is barely progressive. Once federal payroll taxes, federal excise taxes, and state and local taxes are taken into account, a harsh reality is revealed: “The share of total taxes paid by the poorest fifth of Americans (2.1 percent) is only slightly less than this group’s share of total income (3.4 percent).” Even more revealing is that the taxes paid by the nation’s highest income earners are not “dramatically higher” than taxes paid by the middle class, as “the total effective tax rate for the richest one percent (29.0 percent) is only about four percentage points higher than the total effective tax rate for the middle fifth of taxpayers (25.2 percent).” When accounting for total taxes paid by middle income earners and the top 5% of Americans, the overall tax rate hovers equally around 29-30 percent. 

The inequities created by the current tax system is demonstrate the need for comprehensive tax reform, and at the very least, reinforces the argument to maintain current income tax exemptions to balance the other regressive elements of the United States tax system. A regressive tax system is one in which tax rates decrease as income levels rise. For example, since state sales tax becomes a smaller proportion of total income as one’s income levels rise, this can be considered a regressive tax that places a higher burden on those with lower incomes than those with more disposable income able to pay the tax on everyday items, like household products or gasoline.

The Institute on Taxation and Economic Policy, a non-partisan research organization, has a clear breakdown of who pays what, state by state. To see how taxes are distributed in your state, read their report that finds that, on average, the poorest earners pay the highest effective tax rates as a result of local tax policy - regardless of federal tax exemptions that exist to aid this population. 

This report, however, does not address that some of the highest income earners in the country pay significantly less than the average American due to loopholes in the United States tax system. The CTJ has a wide array of educational materials regarding current tax reform proposals, including how to implement the so-called “Buffett Rule,” and other suggestions to implement a tax system that fairly distributes tax burdens.

To better understand why we need a tax system that does not disproportionately affect the poor, visit PolicyforResults.org to learn more about economic and social disparities that impact low-income children and their families.