How Democrats Can Outplay the GOP on Tax Cuts

Booker usefully presents a tax calculator with his proposal. I entered an income of $65,000, the maximum household income for the lower 40 percent in the distribution of income. For a single person without children, Booker’s plan would increase after-tax income by 4 percent. That’s not nothing, but it’s well below the 6.7 percent that Dubya’s tax cuts delivered to the top 1 percent. As for Van Hollen’s plan, the people who win less than $50,000 they rarely pay income tax as things stand.

Remember Mitt Romney famous complaint in 2012, that 47 percent of the population paid no income tax? (The actual percentage was 46 percentwhich has since fallen to 40 percent). Some of Mitt’s 47 (now 40) percent are rich, tax-evading fools, but most of them are low-income. Romney’s complaint relied on biased conservative literature (which I’ve written about before). writing a lot times) who complains that too many Americans are shielded from the costs of government. The problem with this argument is that when we take into account all taxes at the federal, state, and local levels, almost everyone pays them. Indeed, by the time Romney cracked his 47 percent, the middle 20 percent were paying almost as many effective taxes (25 percent) as did the richest 1 percent (29 percent), while the poorest 20 percent paid a sizeable 17 percent. This largely explains why Romney lost the election.

State taxes are more regressive than the federal income tax, but the main reason Romney pays a lot of “untaxed” taxes is the federal payroll tax, or FICA (for Federal Insurance Contributions Act of 1935). About 70 percent of Americans pay more FICA tax than federal income tax because the federal income tax is reasonably progressive at the low end (more, anyway, than at the high end), while the FICA tax, which funds Social Security and Medicare, is not progressive at all. The Social Security tax is regressive in two ways: It is a flat tax (12.4%, split between employers and workers) and it does not apply to income above $184,500. The other component of FICA, the Medicare tax, is a smaller 2.9 percent split between employers and workers, which is also regressive, but the Medicare tax has no income cap and is coupled with a surtax, the Net Investment Income Tax, which makes Medicare financing more progressive.