The U.S. Income Tax Is Already Steeply Progressive

• As of 2006, the tax burden of the top 1 percent of taxpayers exceeds the tax burden of the bottom 95 percent combined. Moreover, according to the National Taxpayers Union, households in the top 5% by income have been paying about 60% of the federal income tax bill for years.

• Income taxes as a portion of a person’s total tax liability is 7.9 times larger for the top 20 percent of taxpayers as opposed to the bottom 20 percent, while payroll taxes as a portion of a person’s total tax liability remains relatively constant across the entire population.

• Many low-income individuals who owe no taxes because of the standard exemption, the personal exemption, the child credit, and the earned income credit end up making a profit off of filling out a return through “refundable” credits, of which the earned income credit is the most common. Moreover, one can collect these “refunds” whether or not one owes any taxes, which disincentivizes upward mobility.

• As the New York Times reports, “the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data.”

• In 2009, approximately 47 percent of U.S. households paid no federal income taxes. While 2009 had fewer households owing taxes than other years due to some allegedly temporary tax breaks and a lagging economy, the Tax Foundation reports that close to 40 percent of households owe no federal income taxes in an average year. According to the IRS, 67 percent of Single Head of Household returns in 2005 had no tax liability whatsoever.

• The proportion of American tax returns that incur no tax liability increased by 59 percent between 1989 and 2007, the latest year for which full analysis is available.

Because so much of the tax burden ends up coming down on the top end, those individuals and small businesses with the most ability to create jobs and spur investment end up devoting much of their capital and effort to sheltering themselves from taxes. Only by recognizing that the top end of the tax scale comprises the engines of economic growth can the U.S begin to incentivize hiring, investment, and upward mobility instead of punishing success.

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