It’s everybody’s favorite time of year: tax time. April 15th is a painful day for many Americans who owe money to the state and federal government. But the number of Americans who actually write checks to the government is shrinking. The bottom half of income earners in the United States pay less than 3% of all income taxes. Compare that to the top 1% of income earners who pay over 37% of all income taxes to the federal government while earning 18.8% of the income.
If you look at polling, most Americans feel as though wealthy Americans and corporations aren’t paying their fair share. According to Pew Research, “64% say they are bothered a lot by the feeling that some corporations do not pay their fair share of taxes, and 61% say the same about some wealthy people failing to pay their fair share.” Yet the percentage of earning compared to the percentage of the burden carried by the wealthy and corporations shows that our tax system is actually among the most progressive in the world.
The federal government takes in approximately $3 trillion in taxes every year. As the years go by, more and more of that money is going towards entitlements. Social Security represents the largest federal spending program. Since 2010, annual outlays for Social Security have exceeded annual tax revenues. Social Security, along with healthcare entitlement programs such as Medicare and Medicaid, represent almost half of all federal spending. In fact, in less than two decades, all projected tax revenues would go toward only health care entitlements, Social Security, and interest on the national debt.
In other words, we have a problem that is quickly growing and no real solution in sight. Some will argue that we need to raise taxes on the rich. But the rich can only handle so much of the burden; there simply isn’t enough money to pay for growing entitlements. Others would like to reform or cut entitlement spending. This is always easier said than done.
Entitlements have also become a source of controversy. For example in Kansas, the legislature has passed a bill call “The Hope Act.” This law would limit the places that means-tested entitlement recipients could spend their government benefits: strip clubs and casinos, for example. While on the surface, many people approve of such limitations, it calls into question the proper role of the government. After all, this money represents a “tax expenditure” in the eyes of the government. This can be defined as, “Revenue a government foregoes through the provisions of tax laws that allow (1) deductions, exclusions, or exemptions from the taxpayers’ taxable expenditure, income, or investment, (2) deferral of tax liability, or (3) preferential tax rates.” The mortgage deduction, for example, is viewed as a tax expenditure by the federal government. There are plenty of “tax expenditures” that millions Americans receive, yet we don’t try and dictate how or where they can spend their money.
Does the government need to be made bigger in order to police the morality of tax expenditures?
At the end of the day, all of us should be in it together as Americans. Despite what little income one may earn, it’s important to have skin in the game. It’s also easy to try and dictate morality or behavior with someone else’s money, but we shouldn’t be so quick to do so if we aren’t sure we can actually pass our own test.
Kansas bans welfare recipients from seeing movies, going swimming on government’s dime (Washington Post)
Federal Spending by the Numbers, 2014 (Heritage Foundation)
This CEO raised all his employees’ salaries to at least $70,000 by cutting his own (Washington Post)
Fed: Gap Between Rich, Poor Americans Widened During Recovery (WSJ)
Federal Tax System Seen in Need of Overhaul (Pew Research)