Taxation: Americans generally hate April 15, but nearly half don't care much about it. Data show that 45% of U.S. households don't pay the federal income tax. We should have a debate about "income tax inequality," not "income inequality."
According to the Tax Policy Center, 45.3% of U.S. tax units have a "zero or negative individual income tax" for 2015. That's hardly changed from 2014, when 45.4% didn't pay, and 2013, when 45.7% didn't (see chart). About half of those who fall into this category have no income tax liability because their income didn't reach the taxable level, while tax breaks in the code wiped out the liability for the other half.
The Tax Policy Center projects that the portion who don't pay will soon begin to fall, hitting 40% by 2025. But that's still too much of a division. Every American needs to be part of the system. The tax burden should not rest on just part of the country. All of us need to share in the misery of filing and paying income taxes. None should be disconnected from the growing cost of government.
As long as a portion of the country has no interest in the federal income tax system because it doesn't take part in it -- some in this group even get refunds, the Earned Income Credit, for taxes they don't pay -- lowering the tax rates, reforming the tax regime and cutting back an ever-growing government will remain elusive. When almost half the country isn't paying, that half will resist any changes that would alter its favorable arrangement and will pressure Congress to increase the burden on those who are paying. The inequality will remain.
This injustice should be an issue in the presidential campaign. Yet the Democrats have made income inequality their key 2016 election point. They don't care that a little more than half of the country is paying the federal tax bill while the rest gets a free ride. In fact, they see those who aren't paying as their constituents and pit them against those who are paying for political advantage.
The country needs a far wider tax base, not one in which about half don't pay while the top 20% of earners pay more than 80% of all federal income taxes and the top 1% pay nearly half. A broader base allows policymakers to drop marginal rates, and simplify the convoluted and torturous code. The result would be increased economic growth, a benefit to all, not just half of the country.
Mitt Romney had it right in 2012 when he said during the presidential campaign that "simplifying the code, broadening the base, is the right way to go for our tax code long term." He was savaged for referring to the 47% who then paid no federal income taxes and "who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it." But he was right. There is an imbalance that needs to be corrected.
A narrow tax base carries both political and economic risks. When those carrying the load -- the economy's most productive members -- want to loose themselves from the anchor, the effect is felt across the entire economy. And be assured, at some point they will grow weary of shouldering the weight, and there will be either political or economic upheaval, or both. It would take only a small portion of these productive people to go John Galt to cause a catastrophic economic event for the rest.
This could be avoided, though, if all Americans dreaded April 15 the way that only about half of us do now.
