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Tax Day

April 16, 2014 in Economics

By Michael D. Tanner

Michael D. Tanner

Yesterday was, of course, tax day, the day on which most Americans file their federal and state income taxes. This, it should be noted, is different from the day on which Americans finally stop working just to pay taxes, which this year falls on April 18, three days later than last year. Until then, the government collects, on average, every cent that Americans earn, so you may still have a few more days to go until you can keep the fruits of your labor.

Altogether, Americans will pay roughly $3 trillion in federal taxes this year, the most ever in nominal dollars. For taxes as a share of GDP, it is topped only by the year 2000. So much for the idea that our budget problems are caused by a lack of revenue.

Tax day inevitably brings out a wide variety of pundits and politicians to repeat a number of persistent myths about American taxation, in particular the recycled claims about how the current tax system is rigged against the poor and middle class to benefit the wealthy.

How much, really, do different brackets of wage earners pay?”

There certainly is much to criticize about the American tax system. It is far too complex and riddled with special-interest favors. There is definitely something wrong when an estimated 1,000 American households earning more than $1 million were able to avoid paying any income taxes in 2013. Moreover, the time and effort put into tax avoidance is badly distorting to the economy in general. Those who believe in free markets should admit that not every tax break is justifiable.

However, on the larger point, wealthy Americans already pay a disproportionate share of federal income taxes. The top 1 percent earns 16 percent of all income in the United States, while paying 36.7 percent of all federal income taxes. The top 5 percent earns just over a third of U.S. income, but pays 59 percent of federal income taxes. On the other hand, the bottom half of tax filers earns 12 percent of U.S. income, but pays just 2.4 percent of federal income taxes. In fact, the 400 highest-earning Americans together pay nearly as much in federal income taxes as do the 50 percent of taxpayers at the low end of the scale. So, yes, the rich earn a lot more than the rest of us — that’s what makes …read more

Source: OP-EDS

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