Friday, April 9, 2010

Too many escape federal income tax

An Associated Press story this week reported that about half of all Americans escape the income tax, but we're not talking about well-heeled tax dodgers with creative accountants and tax lawyers. Recent changes in tax laws make it possible for couples with children and a fairly middle-class income to avoid paying any federal income tax. Thanks to lower tax rates and higher exemptions, plus tax write-offs for dependents and child care, a family of four with $50,000 in annual income might pay no income tax.

There are two things wrong here: First, these people, along with those of even lower income, do pay federal taxes. They pay payroll taxes, contributing to Social Security and Medicare via some of the most regressive tax systems in the country. The $10,000 wage earner pays the same tax rate of about 6.5 percent as the $90,000 manager, and this tax is collected based on gross income with no deductions considered. The payroll tax is clearly one that has a greater impact on lower-income taxpayers. The poor also pay federal gasoline taxes if they drive.

The second problem is that lower-income citizens who pay no income tax have no stake in the country's fiscal future. For them, the federal government is merely a rich uncle who provides earned income tax credits, free school lunches, food stamps and other benefits, all paid for by people who, yes, do make more money than they do but who may not be significantly better off. The non-payers do not contribute to the vast responsibilities for national defense, food safety, transportation improvements, regulation and the rest. In a healthy democracy, everyone has a stake in the future, and everyone contributes to the nation's fiscal health.

Nobody in Washington wants to talk about raising taxes, but with a deficit of $1 trillion-plus, it's a topic that needs attention, along with some serious cuts in spending. Tax exemptions should be adjusted so that only the poorest Americans pay no income tax. Half the nation's tax filers now pay 97 percent of the income tax. If we changed that figure to just 90 percent, more people would have a stake in the country.

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