Saturday, April 10, 2010

Who Pays and Its Meaning

Two different takes on the news about who's paying taxes:

Mark Steyn: And yet, for an increasing number of Americans, tax season is like baseball season: It's a spectator sport. According to the Tax Policy Center, for the year 2009 47 percent of U.S. households will pay no federal income tax. Obviously, many of them pay other kinds of taxes – state tax, property tax, cigarette tax. But at a time of massive increases in federal spending, half the country is effectively making no contribution to it, whether it's national defense or vital stimulus funding to pump monkeys in North Carolina full of cocaine (true, seriously, but don't ask me why). Half a decade back, it was just under 40 percent who paid no federal income tax; now it's just under 50 percent. By 2012, America could be holding the first federal election in which a majority of the population will be able to vote themselves more government lollipops paid for by the ever-shrinking minority of the population still dumb enough to be net contributors to the federal treasury. In less than a quarter-millennium, the American Revolution will have evolved from "No taxation without representation" to representation without taxation. We have bigger government, bigger bureaucracy, bigger spending, bigger deficits, bigger debt, and yet an ever smaller proportion of citizens paying for it.

John Cassidy: If the poor and lower middle classes aren’t paying income tax, who is? Everybody else, of course, particularly the rich, who get a break on payroll taxes, which aren’t levied on incomes above $106,800. According to the A.P., in 2006 the richest ten per cent of households—those earning an average of $366,400—paid about three quarters of all the income taxes that the federal government collected.

How should we react to these figures? As somebody who believes that wealth is ultimately socially created and that the marginal utility of income declines rapidly with income—a finding confirmed by countless surveys—I believe they are almost wholly positive. By redirecting money to families further down the income distribution, a progressive tax system increases overall welfare—a point A. C. Pigou, another utilitarian egalitarian, made a century ago. But the figures do raise interesting questions of political economy. When almost half the population isn’t paying income tax, what is the politics of higher or lower government spending?

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