Guest Blog (Peter Fisher): Everyone pays taxes

Peter Fisher is research director for the Iowa Policy Project, a nonprofit, nonpartisan organization founded in 2001 to produce research and analysis to engage Iowans in state policy decisions. This post first appeared on their Policy Points blog and is reprinted with their permission.

Let’s get one thing straight. Everyone pays taxes.

Even the lowest-income one-fifth of Americans pay about 16 percent of their income in taxes; they pay gas taxes if they drive, part of their rent goes to pay property taxes, they pay sales taxes when they go to the store, some pay state income taxes. There is no such thing as a class of people who pay no taxes.

Some would like to focus the debate just on the federal income tax and have succeeded in creating the impression that there is a large, permanent class of people who never pay federal income taxes. But they ignore the fact that most of those paying no income taxes this year will pay plenty of taxes later in life, or already paid a substantial share. They may be paying no taxes this year because they are young, starting out in a low-paying job, have young kids, and therefore need every penny they earn to pay for child care and to get by until they move up the career ladder.

Or perhaps they are old, living mostly on Social Security, and are done paying taxes, which they did for most of their working lives. Many pay no income taxes because they are out of work through no fault of their own, or because they are sick or disabled and unable to work.

All this is not mere speculation. Of those who will pay no income tax this year, half owe no tax because subsistence level income is untaxed and because of deductions for dependents. Of the remainder, nearly three-fourths pay no tax because they are seniors, or because of tax credits for children and the working poor.

Imagine that when you first left home and faced a lifetime of supporting yourself and perhaps a family, you could choose what kind of tax system you would be under for the rest of your life. For most people, thinking about life’s uncertainties and risks, something like our federal income tax would be the logical choice. Why? It is based on the principle of ability to pay. The federal income tax collects the most when you are in your prime earning years and can most afford it, and leaves you with all or most of your money when you are struggling and really need it. And it is small business friendly as well. If you are just starting your own business, or the recession wipes out this year’s profits, you owe little or no tax, but if the business does well, you will pay your share.

That’s the way it ought to be. And if the result is that this year, when so many people are facing economic hardship, nearly half pay no federal income tax, remember who those people are. All of them are paying state and local taxes to support our schools and fire departments and roads. And they will have their time to contribute to federal income taxes as well, as many already have.

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