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All Americans Pay Taxes
It was all over the news on Tax Day: 47 percent of Americans don’t pay taxes. This claim was a misleading and just plain wrong analysis of a report from the Tax Policy Center, which estimated that 47 percent of Americans don’t pay federal income taxes. But all Americans pay taxes— federal, and state and local.
All Americans pay federal taxes
- Working Americans pay federal payroll taxes. Many workers’ payroll taxes are higher than their federal income taxes.
- All Americans pay federal excise taxes on purchases of everything from gasoline to fishing tackle boxes.
All Americans pay state and local taxes
- Everyone who has a place to live pays property taxes—even if they rent, the taxes are built into the price.
- Purchases of all kinds of goods—even groceries in some states—are subject to sales taxes in almost every state. There may even be several layers of sales taxes on one purchase including, state, city, and regional transportation or cultural district.
- Most states have income taxes, and many cities impose income taxes or “occupational privilege taxes” if you work in the city.
- The proportion that each income group pays in all taxes—including federal income, payroll, excise, state and local property, sales, and income taxes—is roughly proportionate to that group’s share of income.
- Most taxes, except the federal income tax, are very regressive. That means that they take a larger share of a poor or middle-class family’s income than they take from a rich family.
- Claims that the richest taxpayers are paying more than their fair share usually focus on just the federal income tax. When you include all types of taxes, the country’s tax system is just barely progressive.
| Shares of | Taxes as a percent of income | |||||
| Avg. cash income | Total income | Total taxes | Federal taxes | State & local taxes | Total taxes | |
|---|---|---|---|---|---|---|
| Lowest 20% | $12,400 | 3.5% | 1.9% | 3.6% | 12.4% | 16.0% |
| Second 20% | 25,000 | 7.1% | 5.0% | 8.7% | 11.8% | 20.5% |
| Middle 20% | 40,400 | 11.6% | 10.2% | 13.9% | 11.3% | 25.3% |
| Fourth 20% | 66,000 | 18.9% | 18.9% | 17.2% | 11.3% | 28.5% |
| Next 10% | 100,000 | 14.3% | 15.2% | 19.0% | 11.1% | 30.2% |
| Next 5% | 141,000 | 10.2% | 11.2% | 20.4% | 10.8% | 31.2% |
| Next 4% | 245,000 | 14.2% | 15.8% | 21.3% | 10.2% | 31.6% |
| Top 1% | 1,328,000 | 20.4% | 22.1% | 22.3% | 8.4% | 30.8% |
| All | 68,900 | 100.0% | 100.0% | 18.0% | 10.6% | 28.6% |
| Addendum: Bottom 99% |
$56,200 | 79.8% | 78.0% | 17.0% | 11.1% | 28.2% |
Notes:
1. Taxes include all federal, state, and local taxes, including personal and corporate income, payroll, property, sales, and excise.
2. For calculations of income shares and taxes as a percent of income, income includes employer-paid FICA taxes and corporate profits net of taxable dividends, neither of which is included in the average cash income figures shown.
Source: Institute on Taxation and Economic Policy Tax Model, April 2010
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