The myth that half of Americans don't pay any taxes

Ahh, April 15th, the best day of the year for well-off people to complain about how many taxes they pay and how nobody else is paying them. This year, the Center for Tax Policy has obliged by providing a study stating that 47% of Americans pay no income tax. That number has given rise to a great deal of indignant commentary, like this from CNN's Scott Hodge:

If "taxes are the price we pay for civilized society," to quote Justice Oliver Wendell Holmes Jr., then April 15 is the day that bill comes due for every working American. But that is no longer the case for a growing class of Americans for whom the price of civilized society has been reduced to zero because the tax code's generous credits and deductions completely erase their income tax liability. And for many of these nonpayers, civilized society actually pays them a hefty refund, which is not much different from a welfare check except that it's run through the tax code instead of through the Department of Health and Human Services.

Although the study appears on its face to be correct, the reactions to it miss a really critical point - there are lots of taxes beyond the income tax! Income tax gets the most press, because for well-off people, it's their biggest tax. However, for many lower income people (those who are singled out as free-riders because they don't pay income tax, they give a significant part of their income to the government.

As an example, using the tax calculator at http://www.payroll-taxes.com/calculators.htm, I looked at income and payroll taxes for a person making $25k a year, $50k a year and $100k (without taking into account any deductions):

• A person making $25k a year will pay about $2030 in income tax and $1950 in payroll taxes.
• A person making $50k a year will pay $6800 in income tax but only $3800 in payroll tax.
• A person making $100k a year will pay about $20,000 in income tax but only $7600 in payroll tax (27% of salary).

So payroll taxes are a much bigger deal vis a vis income tax for lower income folks - and those taxes never get refunded back.

Additionally, people with lower incomes pay a substantially higher percentage of their income in sales tax than higher income people. That's because they typically need to spend everything they make, and all that spending gets taxed. If you make enough where you're able to save a substantial portion of you're income, you're not being taxed on it.

So remember, if you hear somebody saying that half of Americans don't pay taxes, it's simply not true. Everybody pays payroll taxes, and everybody pays sales tax (and most people who own their homes pay property taxes) - and these apply regardless of income level, and are typically paid by the poor and working class as a higher percentage of their income than upper and middle income people pay.