The “Non-Payer” Tax Myth

The Congressional Budget Office (CBO) recently released a report detailing the distribution of income and taxation between 1979 and 2007 that, once again, dispels the conservative myth that half of the country pays no taxes.

Chuck Marr of the Center on Budget and Policy Priorities provides the following analysis.

People in the bottom four-fifths of the income scale pay more in payroll taxes than federal income taxes, on average. The Tax Policy Center estimates that payroll taxes (including both the employee and employer shares) outweigh federal income taxes for 82 percent of households. (Most economists agree that workers pay not only the employee share of payroll taxes but the employer share as well in the form of lower wages.)

Working-poor and middle-class Americans pay a much larger share of their incomes in payroll taxes than high-income people do (see graph). That gap has increased over the past 30 years, the CBO report shows. In addition, the share of federal revenues coming from payroll taxes has gone up while the share coming from income taxes has gone down.

When you count all federal taxes (income, payroll, and excise), even people in the bottom fifth of the income scale are net federal taxpayers, on average. This group, whose after-tax incomes averaged just $17,700 in 2007, paid 4.7 percent of their incomes in federal taxes that year.

As a percentage of their income, everyone, including people who make so little money that they do not have to file income taxes, are paying more in other taxes than those in the top income bracket.

Armed with this knowledge, it's easier to understand why extending payroll tax-cuts for the middle-class and working poor is an important element of President Obama's economic agenda. It's also why the Republicans in congress are blocking something which they would usually, under any other circumstances, chose not to block.