Like 53% of American households, mine pays federal income taxes, meaning we subsidize the 47% who don’t pay. This is an untenable position. One of the principles of American life is the principle of fairness, and fairness dictates that everyone be treated the same; if I pay taxes, you must, too!
Here is a proposal to bring back the fairness to the tax system which was lost with the 1980’s tax reforms:
- Elderly recipients who live off Social Security and little other income make up 22% of those who pay no taxes. There is no reason that these individuals should not have to pay tax on their earnings when the rest of us do. We must eliminate the exclusion of Social Security earnings from taxation for those who have no other income on which they are paying taxes.
- Households filing taxes get an $11,600 standard deduction and $3700 personal exemptions for each member of the household. An individual earning less than $15,300 will pay no taxes. A family of four earning $26,400 will get a standard deduction of $11,600 and 4 exemptions of $3700 each. This will reduce its taxable income to zero. 50% of households among ‘the 47%’ fall in this category, which is why they don’t pay taxes. This must be stopped. Since eliminating the standard deduction and the personal exemption would raise taxes on the rest of us, we must eliminate them only for those who earn too little to pay taxes.
- With the tax reforms of the 1980’s, some direct payment welfare programs were curtailed, and the earned income tax credit, child credit, and child care credit were substituted to enable parents of poor families to return to employment. This accounts for 15% of those who pay no taxes. Why should some of us have to pay taxes so others can work? These credits must be eliminated. Since some who pay taxes pay at reduced rates because of these credits, these credits should only be eliminated for those who pay no taxes.
- The other non-tax-paying 13% make up 6% of all households. They avoid taxes in a variety of ways, so it will take a variety of changes to bring them into the tax-paying pool.
There are a couple of critiques we must address. The first is that even though the working poor do not pay income taxes, they pay Social Security and Medicare taxes, other federal taxes, and other state and local taxes. It has been estimated that the poorest 20% of Americans, those least likely to pay income taxes, still pay 16% of their incomes in taxes, all combined. But this ignores the major characteristic of the federal income tax, that it is the champion of taxes, and the one which must take precedence over all others.
The second critique is that those who pay no income taxes also earn a very tiny percentage of the national income, at most 13%.1 But that is not the point, fairness is the point; we all must pay. While it may not do much to reduce our national deficit, it will do much to raise our national pride.