As you filed your taxes this year, you might have spent some time grumbling. Why does it have to be so complicated? Am I paying too much? Couldn't the system be more fair?
But it's at this time of year when you ought to consider that as an American, when it comes to taxes you've got it easy.
At least in some ways. It's true that the system is inordinately complicated, which is in large part because it was built by special interests with the means to navigate the complexity they designed. As for your personal taxes, it could be much simpler and easier, but the companies that make your tax software have successfully lobbied to keep the system more complex so you'll have no choice but to buy their products.
That aside, there are a lot of misconceptions about taxes in America, starting with the idea that we pay too much.
In fact, we pay much lower taxes than most of our peer countries. In the United States, our tax-to-GDP ratio is about 26 percent, far below the 34 percent average of the advanced economies in the Organisation for Economic Co-operation and Development (OECD), and drastically less than some European countries (Denmark tops the list at 46 percent). To some conservatives and libertarians, the appropriate response to those figures is, "That's why we're more free than them." But are we?
If by "free" you mean "more vulnerable," then yes. We have chosen — whether we did it consciously or not — to create a system that makes it easier for a small number of people to get super-rich, but also makes life more cruel and difficult for everyone else. In your average social democratic European country, you pay more taxes, but you also get a lot in return: universal health coverage, free child care, generous paid family leave, and free college, for example. If you're Danish or French or German, there are certain things you just don't have to worry about, things that keep us Americans up nights.
All of that is a choice. We choose to make health care a privilege, not a right. We choose to pay teachers so little they've been forced to walk off the job. We choose to have high rates of child poverty, and some of the highest levels of inequality in the industrialized world. Those are choices we make, and they start with how much we're willing to raise in taxes.
Yet one of our two major parties has as its most passionately held belief the idea that wealthy Americans pay too much in taxes, and no effort should be spared to relieve them of their crushing burden. Which is why this party just passed an enormous tax cut primarily benefiting corporations and the wealthy, just as it always does when it takes power, and why it routinely decries the tribulations of "job creators" while pouring contempt on the mooching poor who get away without paying taxes. The Wall Street Journal, house organ of the American overclass, once famously referred to these grasping proletarians as "lucky duckies," avoiding taxes while only having to suffer the minor inconvenience of poverty in return.
But here's the truth: If you add up all the taxes Americans pay, the system is only slightly progressive. As this new report from the Institute on Taxation and Economic Policy shows, those in the poorest quintile pay a total of about 16 percent of their income in taxes, those in the middle pay 25 percent, and those in the top 1 percent pay 30 percent. Even if the federal income tax is quite progressive, with everyone paying more the higher their incomes, the non-rich pay a lot of other taxes, many of which, like payroll taxes and sales taxes, actually hit you harder the lower your income.
So how should we change the tax system? Last year at tax time I asked a bunch of liberal economists what changes they'd like to see, and I was somewhat surprised to find that they didn't favor an overhaul of the system; instead, they proposed relatively small adjustments to make it more progressive and raise more revenue. The reason was that unlike conservatives, they don't believe that tweaking the tax code, in whichever way you do it, will transform the economy and make everyone rich. Just this week, Rep. Kevin Brady (R-Texas), the chief tax-writer in the House, wrote an op-ed claiming that the Republican tax bill "has laid the foundation for a new era of American prosperity ... a true revival of American innovation, dynamism, and economic growth."
What a joke. The biggest effect of the GOP's tax bill has been to spur an explosion of stock buybacks benefiting shareholders and Wall Street, with only a small portion going to workers. In other words, just as Democrats predicted, a trickle-down tax cut produced a smorgasbord for the wealthy and not much of a trickle for everyone else. Which made it just like every Republican tax cut.
The American public seems to understand this pretty well; if you look at polls about taxes, people's chief complaint is always that the wealthy and corporations aren't paying their fair share. But the problem goes even deeper. We could all pay more, and in return get more from government than we're getting now. We just have to decide to do it.
