Taxes: Who Pays?

Upside-Down Tax System: The More You Make the Less You Pay, (Percentage of Income Spent on State & Local Taxes -- by Income Bracket). Source: Who Pays? A Distributional Analysis of Tax Systems in All 50 States, Third Edition, Institute on Taxation and Economic Policy, November 2009 (all data from 2007). Click to enlarge.

Are taxes too high? That all depends on where you sit on the income ladder. When it comes to the state and local taxes that pay for basic services, working people pay nearly twice as big a proportion of their income as the wealthy do.

Nationally, the bottom fifth of earners—making an average of $10,700 a year—pay 11 percent of their income in state and local taxes. By contrast, those in the top 1 percent—with incomes from all sources averaging $1.8 million—pay less than half that, 5.2 percent.

Corporate Taxes as Percentage of All Federal Taxes. Source: Statistical Abstract of the United States, 2010. (Note: 2010 is an estimate.) Click to enlarge.



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This upside-down tax system is the result of states' heavy reliance on sales taxes and property taxes, which hit working people much harder than the rich. Personal income is taxed at a much lower rate by states than by the federal government, and nine states don't collect personal income tax at all. Seven states—including Colorado, Illinois, Michigan, Massachusetts, and Pennsylvania—have a "flat tax," where everyone pays the same rate, rather than a "progressive" tax where higher income brackets pay a higher percentage.

What about big corporations? State and local governments get less than 5 percent of their tax revenue from corporate taxes. At the federal level, corporate taxes have declined tremendously in the past two generations. Whereas corporations used to pay a third of all federal taxes collected, today they are paying 10 percent, thanks to expanded loopholes, a steady stream of business tax cuts, and rampant tax avoidance.

A version of this article appeared in Labor Notes #377, August 2010. Don't miss an issue, subscribe today.