Tax Myths

A somewhat strange myth has taken hold in some precincts of American conservative opinion that some vast swathe of the population isn’t paying taxes. In fact everyone pays sales taxes and other state and local taxes, and as Adam Looney and Michael Greenstone write for the Hamilton Project almost all working-age people pay federal tax on their income.

The main bloc of people who don’t pay income or payroll taxes are elderly people. Old people tend not to work, and many old people don’t have much in the way of investment income either. But it’s not like they’re freeloading, they’re just people who paid taxes in the past when they were working.

There are a couple of points worth making.

First, Yglesias is correct in noting that technically everyone pays taxes. Some taxes are direct, like fees for federal services, sales taxes, payroll taxes (which are generally only avoided by student workers, a handful of other workers, and the unemployed), and a few other taxes besides. Furthermore, everyone pays taxes indirectly, in the form of foregone goods and services. Corporate taxes are a perfect example of this, and some limited taxes (think: capital gains) also have indirect costs. Thus, to say that no one pays taxes is technically incorrect and highly misleading. If conservatives continue to say that there are a large number of people who don’t pay any taxes, they will find themselves facing political problems later.

Second, the more technically correct claim would be that there are large numbers of people who don’t have any income tax liability. This could mean that some people don’t earn enough to be charged taxes, it could mean that some people are able to claim enough deductions to avoid having to pay taxes, or it may be that someone is able to claim enough tax credits to negate their tax burden. Not having an income tax liability does not necessarily make one a parasite on the system, and given that a large number of current non-tax-payers have basically paid taxes for fifty or more years, painting them as lazy or as parasites, or as evidence that the system is on the verge of collapse is likely not going to go over very well politically.

Finally, the correct response to this issue should be two-fold. Conservatives should use this issue to argue for generally lower tax rates for all, in the name of fairness. Instead of raising taxes on current non-payers, conservatives should argue for lowering rates on current payers. In keeping with this, conservatives should also call for radical spending cuts. Ideally, conservatives would cut out all unconstitutional spending, which would cut the current budget by roughly 60%. In lieu of this, a spending cut of at least 45% would be acceptable.

At this point in time, conservatives have a good opportunity to cut taxes and reduce government spending. As long as they understand the reality of non-payers and take pains to not put their collective feet in their collective mouths, and as long as they hammer home spending cuts (hopefully in a more serious manner than Paul Ryan), they should have a chance at actually making a difference.

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