It’s hard enough wading through the tax code in preparing your personal tax returns. But parsing the blizzard of proposals for tax hikes, tax cuts and tax reform offered by President Obama, lawmakers and GOP presidential candidates can be overwhelming.
It’s not just that taxes and their implications for the economy are complicated. It’s that politicians often shade facts about the U.S. tax system to their advantage, using contradictions, half-truths or downright distortions to make their case.
Wonkbook: Gingrich and Romney have the same problem
We hear constantly that individuals and businesses are saddled with excessive tax rates, that the wealthy are paying their fair share, that corporate tax rates are oppressive and discourage economic growth, and that many low-income Americans pay no taxes at all.
Tax reform is a dominant theme on the presidential campaign trail, and Mitt Romney, Herman Cain, Newt Gingrich and others are wielding major tax schemes to try to set themselves apart from the others. Yet it’s impossible for the average voter to come to sound conclusions about candidates’ ideas when they’re getting fragmentary or distorted explanations about the realities of the tax system.
The failure of the congressional “supercommittee” to agree to a plan to reduce the deficit by at least $1.2 trillion underscores the divergence of political and ideological views over how Americans should be taxed. As you follow along, consider these falsehoods or shades of truth that are often bandied about:
Americans’ tax rates are high
By historical standards, federal tax rates are about at their lowest levels ever. Even if the Bush tax cuts expire at the end of next year, and the top marginal income tax rate rises to 39.6 percent, that will still be low by historical standards.
Since the income tax became permanent in 1913, the top rate has been lower than today’s rate in only 16 years — most recently between 1988 and 1992, when the top rate was 28 percent, and then was bumped to 31 percent as a deficit-cutting measure under President George H.W. Bush.
So for 74 years, the top tax rate has been higher than it is today, and for 63 years it was higher than 39.6 percent — usually significantly higher: For 54 years, the top rate was at least 50 percent. Through the 1950s and early 1960s, it was more than 90 percent.
Of course, income taxes are just one category of taxes. Americans are getting taxed from every angle — such as payroll taxes, the alternative minimum tax and taxes on sales, investment income and gasoline. And don’t forget state and local taxes.
But the Bureau of Economic Analysis concluded that the overall tax burden has been shrinking. The share of Americans’ income that went to federal, state and local taxes shrank from 14.4 percent 10 years ago, to 12.4 percent in 2008, to 9.4 percent in 2010.
Tax breaks passed by Obama, such as the Making Work Pay credit and increases in education and earned income tax credits, contribute to the reduced burden.
America’s poorest pay no taxes
A recent study by the Joint Committee on Taxation found that 51 percent of American households — those at the lower end of the income scale — pay no income tax. The finding has been repeatedly cited by lawmakers such as Sen. Orrin G. Hatch (R-Utah) as reason to create a system in which these folks have to ante up like the rest of us.
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