Tax Day 2010 - Who is Really Overtaxed?


April 15, 2010
Jos G. Linn

A Citizens for Tax Justice shows that while the lowest-income Americans do pay the smallest share of their income in federal income taxes, these people pay the largest share of their income in state and local taxes, 12.4 percent v. 8.4 percent for the top 1 percent earners. In other words, when it comes to state and local taxes, the poor get dinged the most.

Furthermore, the effective tax rate for the wealthiest 1 percent (the amount of taxes they actually pay) is not that much higher than what the middle class pays. The top 1 percent earners have an average cash income of $1.3 million and pay 30.8 percent of their income in taxes. The middle income earners have an average cash income of $40,400 and pay 25.3 percent of their income in taxes (the lowest income group pays 16 percent). Considering the U.S. system is supposed to be a progressive tax system where those who earn more pay more, a 5 percent difference in tax rates on a 3,200 percent difference in income is not all that progressive. Considering that half of the $2.5 trillion in tax cuts enacted under President Bush have gone to America’s wealthiest five percent, we can see why (these cuts also account for a good chunk of our current budget deficits).

This year Congress has to decide whether to continue this broken system or fix it. While comprehensive tax reform is unlikely to happen in 2010, significant changes to the tax code will have to be made. First, the expansions of the Earned Income Tax Credit and Child Tax Credit from the last year’s economic recovery bill, which have benefitted millions of low-income children and families, will expire at the end of this year. If not extended, 1.5 million low-income people, including 800,000 children, risk falling back into poverty. In addition, the Bush tax cuts are also set to expire at the end of 2010. President Obama is urging Congress to extend the cuts for individuals making less than $200,000 per year ($250,000 per couple) and allowing the cuts for those above that level to expire. While Democratic leadership seems to support for this position, Republicans are pressuring them to extend the tax cuts for the rich as well. Extending these unnecessary cuts would continue to the flow tax benefits to the very top, risk funding for important social programs, and worsen our federal budget deficits.

TAKE ACTION: Use RESULTS’ April Action sheet to write a letter to your representatives and senators. Urge them to talk to House and Senate leaders to make the 2009 expansions of EITC and CTC permanent so that low-income Americans don’t lose their benefits at the end of this year. Also urge them to support the president’s proposal to let the Bush tax cuts for the wealthy expire. Better yet, use this week to join our partners at Bread for the World in calling the tax aides for your representatives and senators in support of protecting the EITC and CTC. You can call toll-free at (800) 826-3688. Be sure to use the talking points listed in the Action sheet for your conversations.

We greatly appreciate Bread for the World allowing us the use of its toll-free number.

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