The greatest trick the rich ever pulled was making us believe they pay all the taxes

by Dylan Matthews, published April 15, 2015

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Blue-collar workers pay taxes, too.

Typically when politicians fight about taxes, they fight about the income tax. That is to say, they fight about the tax that rich people hate — not the taxes poor people hate.

This leads to a really perverse dynamic, wherein the taxes the privileged pay are worthy of attention and the ones the poor pay are ignored. It paints a picture where the government is being supported on the backs of the wealthy, and the poor and middle class are free-riding. It leads to plans for various kinds of tax cuts and tax reforms that matter massively for the rich and very little for the poor.

The issue here is the ceaseless focus on the federal income tax. A report from the Joint Committee on Taxation found that most Americans (65.4 percent of filers) pay more in payroll taxes than income taxes. It’s only once you start looking at folks making over $200,000 a year that most people are paying more in income taxes.

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Joint Committee on Taxation

The numbers here are surprising if you think about tax systems as something people only pay into, rather than get anything out of. But because so much of US social policy is structured as tax credits, a lot of people get more money back from income taxes than they put in. The JCT finds that people making under $40,000 get $81.1 billion more back from the income tax system than they put in — largely because of refundable credits like the Earned Income Tax Credit and the Child Tax Credit.

But that same group pays $121.5 billion in payroll taxes. They still, on net, contribute billions to the federal government every year. Of course, this doesn’t even count the sizable contribution of the poor and middle class in state and local taxes, which are actually higher for the poor than they are for the rich.

This isn’t just true for the poor — it’s also true for the middle class. Filers making between $40,000 and $50,000 pay almost 12 times as much in payroll taxes as in income taxes; filers making between $50,000 and $75,000 pay more than twice as much.

This helps explain why some policymakers — like Sens. Mike Lee (R-UT) and Marco Rubio (R-FL) — are exploring ways to reduce payroll tax burdens, for example by introducing a new tax credit for parents that can also reduce payroll taxes. That’s a shift from normal, income-tax-focused policy debates — and, for poorer families, a welcome one, too.

Thanks to Howard Gleckman at the Tax Policy Center for the pointer to the JCT report.

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