David Cay Johnston proves that the notion that half of all Americans skip out on paying taxes is a load of hogwash.
Even if some citizens don’t owe anything in federal income taxes, they pay sales taxes, gas taxes, Social Security taxes, Medicare taxes and plenty of other taxes—and for low- and middle-income Americans who don’t have money left over to save, that’s a big bite out of the dollars that they earn.
We often hear the same argument in Arizona when personal state income taxes are discussed, because the majority of income from those taxes comes from the top earners. However, in terms of percentages, Arizona happens to have one of the most regressive tax systems in the country, according to a 2009 study by the Institute on Taxation and Economic Policy.
Non-elderly Arizona families that earned less than $20,000—which amounts to the bottom 20 percent of earners—paid about 12.5 percent of their income in taxes; the middle 60 percent paid 8.5 percent of their income in state taxes; and top 1 percent paid just 5.6 percent of their total income in taxes. (As you can see from the chart on Page 21, the more money you make, the smaller the percentage of that income that you pay to the state.)
The numbers are a few years old, but Arizona’s regressive structure has almost certainly gotten worse since the study was done, given that voters increased the sales tax by a penny per dollar last year. And while taxes have gotten more regressive, programs that benefit the poor and the middle-class have been steadily cut back—so the average Arizonan is now getting fewer services while paying more in taxes.
Income taxes are actually a pretty good deal for the vast majority of Arizonans, given that 85 percent of households paid more in sales taxes than income taxes in Arizona.
Nonetheless, Arizonans have a dim view of income taxes and would rather raise their sales taxes, according to a 2010 survey of 1,000 state residents by the Pew Center on the States. Only one in five people surveyed supported increasing state income taxes, while 29 percent supported the idea of making the 1-cent sales tax permanent. Roughly one-third liked the idea of expanding sales taxes to services that are now untaxed, an idea that’s been pushed by legislative Democrats and other tax reformers as a way to lower the overall sales tax while expanding the base.
That kind of sales-tax reform, however, isn’t under serious consideration by the GOP-controlled Legislature. Instead, this year, Republicans continued to push the supply-side tax policies that have shifted the tax burden from the wealthy onto the middle class and the poor.
Earlier this year, lawmakers—in a three-day special session, and without a single Democratic vote—passed a package of corporate tax cuts that will be phased in over the next five years. The cuts to corporate income taxes and some business property taxes will cost $38 million in the upcoming fiscal year, and $538 million when fully implemented in 2018.
House Speaker Kirk Adams argues that the tax cuts will encourage corporations to move to Arizona—but if that gamble doesn’t pay off, the state will be forced to slash hundreds of millions of dollars from a state budget that has already been cut to the bone, which will force even deeper cuts to education and other programs in upcoming years, even though business leaders warn that cutting education and universities will ruin Arizona’s ability to compete for jobs.
Republican lawmakers also proposed shifting even more of the burden onto the poor and middle class while giving the highest-earning Arizonans a tax break.
House Bill 2636, which would have created a flat tax in Arizona, passed the House of Representatives last month, despite the fact that the proposal would have raised taxes on nearly nine out of 10 households.
Even though Republicans control the Legislature, they can’t repeal the law of mathematics—and any tax reform that reduces taxes on the wealthy while trying to bring in the same amount of revenue must raise taxes on everyone else.
In addition to lowering the tax rate for higher earners, HB 2636 would have eliminated many popular deductions, such as the mortgage-interest deduction and breaks for having children.
The Arizona House of Representatives passed the bill on a party-line vote without waiting for an economic analysis, but the proposal stalled in the Senate after a Joint Legislative Budget Committee review showed that it would have increased taxes for every income group with a federal adjusted gross income of less than $100,000—which accounts for about 88 percent of the Arizona households that file taxes.
The shift to a flat tax would have “winners and losers,” said Karen McLaughlin of the Children’s Action Alliance. “And most of the middle class and the lower class would be the losers. They’d be paying more in taxes, and those at the high end of the income scale would be paying less.”
The flat-tax proposal would have delivered an average state tax cut of $918 for taxpayers earning between $152,000 and $354,000, while those earning more than $354,000 would see an average cut of $11,676, according to an analysis by the Institute on Taxation and Economic Policy. Meanwhile, middle-income earners would have seen their taxes increase by between $179 and $247.
In a recent radio interview on Bill Buckmaster’s radio show, Sen. Frank Antenori fell back on the argument that too many people don’t pay income taxes—even though the data shows that they’re paying a higher percentage of their overall income in taxes because of Arizona’s regressive structure.
Antenori says he supports raising income taxes on the majority of Arizonans while giving the top 12 percent a massive break, because it will make citizens pay more attention to how their tax dollars are being spent.
“The progressive tax code is destroying the country,” says Antenori, a Republican who represents Tucson, Green Valley and Sierra Vista. “It is creating an opportunity to wage class warfare. … A flat tax spreads the burden of the state services that everyone demands equally. And everybody is an investor in the state of Arizona. And when you get rid of the progressive tax, and you say everybody is a taxpayer, (and) everybody’s a shareholder based on a percentage of income, then when everybody starts talking about raising taxes, people will pay more attention.”
This article appears in Apr 14-20, 2011.
Dear Socialist author: I am economist and portfolio manager and prepare income tax returns annually. The so called poor in our state have: Free health care via AHCCCS, free education, subsidize housing and most have cell phones. The untaxed benefits on average for a family of 4 exceed $40,000.
Facts you can verify via http://www.irs.gov: Top 1% of tax payers pays more than 40% of total federal tax. Raising tax rates ALWAYS lowers cash to the treasury. The Bush era tax cuts brought in more CASH to the US Treasury than at any other time in history.
The FREE MARKET is best when government gets the hell out of the way
Thomas J. Zaleski RIA EA
President
Thomas Capital Management, LLC
Fair tax is NOT fair. It has been pushed by various Tea Parties and they are 100% mathematically proved wrong by economists like Arthur Laffer, Walter Williams, Thomas Sowell, Thomas Zaleski (yes me). Fair tax is a consumption tax that crushes sales of all goods. Then proponents then say they will “exempt” certain items and that is the trap where special interests rule.
USA economy and ALL modern economies are based on consumption. Example: most propose 23% to 33%. Let’s be generous and take the 23% ex. In Arizona our sales tax (actually a “privilege use tax) combined with the local/city tax is around 10% depending on the town. 23 + 10 = 33% tax. If you are have a typical family of 4 earning 35 to 60K you now have your tax more than TRIPPLED. That will NEVER sell and causes people to hoard cash. That CRUSHES investment, innovation, etc. Fair tax is a light cousin of France’s VAT tax that was introduced in 1954 and has made France a NET importer of ALL manufactured goods with few exceptions. Please re-think this.
Arthur Laffer has proven that a flat tax of about 11 to 12% will replace 100% of current IRC (including FICA, etc). The Federal government is precluded by the US Constitution in the 9th and 10th Amendment from interfering with internal tax matters (and others). The several states all have different methods of levying and collecting state sales taxes. There is no way NY or WY will ever be the same type of population or desires, issues, etc; therefore, trying to have a uniform state sales tax will not take place. Even if possible and desirable we simply do not have the time.
We MUST slash spending now or risk entering a prolonged period of deflation where millions of new unemployed join the 15 million now unemployed. That has never been experienced in America and it would be brutal.
Another key factor: Fair Tax will lend itself to CORRUPTION on a grand scale. Certain favored activities/manufacturing/assembly will be EXEMPT from the tax. Such as: Green tech compaines, GM, Chrysler, etc. Think and you will agree Fair Tax is NOT fair and is down right dumb!
I believe that the Flat tax has real potential to gain traction. The Fair Tax was originally put forth by Dick Armey and some of his supporters. Its base motive is to get at the so-called underground economy (Illegals, etc). Like the VAT the FT is anti-consumption and anti-capitalist in nature. It punishes consumption and hurts the poor to a much greater degree as the poor consumes nearly 100% of their income on just basic necessities like food and rent.
FT: What items are exempt? House and auto/truck purchases? Arizona has basically a 10% sales tax. FT of 23% (as put forth by Armey and the Tea Party groups) plus the state tax would mean a car that costs $30,000 would have an additional tax in excess of $9,900! That would crush manufacturing jobs immediately
Flat Tax: I would need hard data from IRS but here goes: Arthur Laffer has developed a Flat Tax proposal of about 11.5% plus ‘sin tax’ (alcohol and tobacco). I would increase the rate to 12% and add (through constitutional amendment) 3 to for points additional for a period of say ten years where these monies would be used to repurchase our debt. In ten years we should dramatically reduce the amount of total debt to zero or to a level relative to GDP/GDI that is nominal. At the end of ten years it would reset by the constitutional amendment to 12%.
Still, a flat tax will impact (relatively speaking) the poor harder as they utilize the vast majority of their income for basic needs. Perhaps we could exempt the first $10,000 per tax payer ($20,000 MFJ). Therefore, a couple making $100,000 would have taxable income of only $90,000. This is where it can get messy by adding exemptions, exceptions, etc. I would eliminate 100% of all deductions EXCEPT for an IRA contribution say of 10% of gross income. In this example:
MFJ* $ 100,000.00
First $10,000 $ (10,000.00)
IRA contribution of 10% $ (10,000.00)
Taxable Income $ 80,000.00
Flat Tax of 15% (12 plus 3 to pay down debt) $ 12,000.00
Married filing Joint Return
Laffer has better access to hard data; however, this is a good baseline. The obstacles are the entire Charity organizations, AICPA , NAEA , Trial Lawyers, Housing, and many more. Therefore it would take a major effort like a Constitutional Amendment and therein lies the danger. Would the amendment work? It is very tough to undue and amendment. Also, we don’t have the time to mess with this amendment, most likely. The debt must be attacked now by eliminating whole sections of the budget.
Thomas:
Evidently you or no one you know receives these “Freebies” . Otherwise you would know that 1) They are NOT for everyone. I for one make too much money to recieve any of them, (though I only make $11,000 a year) 2) My education was not free, it cost me a great deal of money that I am still paying back! 3) Why is it that when anyone talks about tax reform the Republicans start screaming Socialist? How is it that you people are always saying get the government out of our lives, yet you are the first to grab every tax break the GOVERNMENT offers??? Our system of government is seriously flawed yet any attempt to fix it is met with this sort of name calling and drivel!
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Thom Hartmann covered this topic (including David Cay Johnston’s article) quite well on his radio program.
Three points:
– (1) David Brooks (Republican Party commentator): ‘We Republicans are good for only two things: cutting our taxes and blaming Democrats.’ (PBS Newshour – June 2006)
– (2) ‘Collier’s’ Encyclopedia, c1950: Their entry regarding President Calvin Coolidge.
Collier’s described that Coolidge implemented policies to ‘greatly reduce taxes on the wealthiest’ while extending ‘massive public subsidies and aid to corporations without any restrictions or obligations’.
Collier’s stated that there were short-term economic gains, but that by the time President Herbert Hoover took office and expanded Coolidge’s policies of low / no taxes for the wealthiest and free public money to corporations, America’s bubble was bursting and ‘the Great Depression was beginning’.
(This should teach us how Republicans still practice the same gimmicks using different names (Reagan: ‘Tinkle Down Theory’). We are not in a ‘Great Recession’, we are in another Republican Party-induced ‘Great Depression’. ‘A rose is still a rose …’: Shakespeare.)
– (3) Groucho Marx fell for the 1920s Florida land boom and went bankrupt. The Marx Brothers’ ‘The Cocoanuts’ (c1929) takes a hard satirical examination of the land scams of their day. No doubt anyone watching that film today will see the same thing in our mortgage derivatives catastrophe.
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Thomas, your belief that tax cuts always bring in more revenue by heating up the economy is another tax myth.
Bartlett makes the point here better than I could:
http://www.thefiscaltimes.com/Columns/2011…
If you’re sincerely concerned about the deficit’s capacity to destroy the country, why on earth are you opposed to paying a bit more in taxes? Is saving the country not worth a few dollars more a year? Does the future of America mean that little to you?