Five Points Worth Remembering About Taxes and the Poor

October 18, 2012 at 2:54 pm

At a recent Tax Analysts panel discussion, I provided some background on the taxes that low-income people pay and what they have at stake as we approach an intense period of decision-making on federal tax and budget issues.  Below are five of my main points:

1. Most of the people who don’t owe federal income tax are workers, elderly, disabled, or students.

The largest single category is people who work.  Here are just a few examples, based on our analysis of Census data:

  • 2.1 million are construction workers.
  • 2.1 million work in factories and other manufacturing jobs.
  • 4.5 million work in retail stores.
  • 2.7 million help care for patients in hospitals and doctors’ offices and assist elderly people in nursing homes.
  • 3.5 million work in the restaurant and food service industry.

2. Low-income households pay significant federal taxes.

For low- and moderate-income people, payroll taxes are much more significant than income taxes.  These people also pay a much larger share of their incomes in payroll taxes than high-income people do.

The same goes for excise taxes.

3. Low-income households also pay significant state and local taxes.

Unlike federal taxes, which are progressive overall, state and local taxes fall much harder on low-income people.

4. Income growth has been weak at the bottom of the scale.

For a complex set of reasons that include globalization, technological innovation, weakened unions, and policy decisions on the minimum wage, incomes have grown very slowly at the bottom of the scale in recent decades.  Many people work hard but simply do not make much money.  Recent projections from the Bureau of Labor Statistics (BLS) underscore that this situation is unlikely to change soon.  Five of the ten occupations that BLS expects to generate the most jobs in the next decade pay below $25,000 a year.

5.Tax credits make a big difference for low-income working families.

Historically, both parties have supported a robust Earned Income Tax Credit (EITC) for low-income workers, which is the best kind of welfare reform because it encourages and rewards work. Along with the Child Tax Credit, the EITC lifted 9 million working people out of poverty in 2010.  But a big part of these credits’ success reflected improvements that policymakers made in them in the 2009 American Recovery and Reinvestment Act (ARRA), which are slated to expire at the end of the year.

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More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio | Blog Archive | Research archive at CBPP.org

6 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. FrankTrades #
    1

    Is there a Poisson distribution of incomes? A normal distribution seems unlikely given your data; if so you use simplistic graphs to hide data and lie.

  2. Widgemaker #
    2

    I’ve said it before on a number of blogs and I’ll say it here again because no one seems to address this point. In 2009 the bottom 50% of income earners recieved 13.5% of the national income pie and paid 2.3% of total income tax (see taxfoundation.org). That’s it. Conservatives love to point out that the top 1% pays 40% of the tax burden (but they conveniently omit that they also received almost 23% of national income in 2009). With such a measly share of income divided amongst the lower half of society it should be plain why they pay so little a share of the national tax burden.

  3. ezra abrams #
    3

    payroll taxes – since you get back, roughly, what you put in, isn’t this a wash ?
    I mean, don liberals justify social security as a non means tested non welfare system ?

    re excise taxes – a lot of those are alcohol and cigarettes, so I’m not sure that that is a bad or good thing

  4. Noni Mausa #
    4

    I blushed to realize I had to look up “excise taxes.”

    “Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are not uniform throughout the United States. Excise taxes are collected by the producer or retailer and not paid directly by the consumer, and as such often remain “hidden” in the price of a product or service, rather than being listed separately. This is thought to explain their appeal to many politicians.”

    So the poorest Americans, out of their already sub-poverty level wages, pay 16 times the excise (hidden) taxes as what the wealthiest people do, as a percentage of their income.

    Noni

  5. Nancy Irving #
    5

    Thanks for this post.

    When people fulminate over the almost half of all Americans who don’t pay federal income tax, I reply that we could fix that by tripling the minimum wage.

    Strangely, this solution generates little enthusiasm amongst the fulminators.

    • votegaryjohnson #
      6

      well, if you triple the minimum wage, unemployment would soar. not sure that would be much help to anyone.



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