Federal Income Tax Is Not the Only Tax

Phyllis Schlafly, the attorney and conservative political activist, has published a piece arguing against the United States’ progressive tax structure, in which around half of Americans will pay no federal income tax this year. In the piece, she writes:

The outright cash handouts include the earned income tax credit (EITC), which can amount to $5,657 a year to low-income families. Financial benefits can include child tax credits, welfare, food stamps, WIC (women, infants, children), housing subsidies, unemployment benefits, Medicaid, S-CHIP and other programs. This is a massive transfer of wealth and a soak-the-rich racket.

I’ll repeat: She argues that programs such as WIC — which provides food to “low-income pregnant, breastfeeding, and non-breastfeeding postpartum women, and to infants and children up to age five who are found to be at nutritional risk” — is a “soak-the-rich” racket. Schlafly’s is the most radical iteration of a common conservative talking point, that America’s low-income wage-earners are pulling a fast one on wealthier wage-earners by shirking income taxes. David Leonhardt at the New York Times offers an excellent, levelheaded refutation today:

The 47 percent number is not wrong. The stimulus programs of the last two years — the first one signed by President George W. Bush, the second and larger one by President Obama — have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability.

But the modifiers here — federal and income — are important. Income taxes aren’t the only kind of federal taxes that people pay. There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too. Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47.

Furthermore, the rich have their tax breaks too — none more egregious than the carried interest rule, which allows people like hedge fund managers to pay a 15 percent capital gains tax, rather than the standard 35 percent income tax, on certain earnings. That rule is currently undergoing Congressional scrutiny.