An Easy Problem without an Easy Answer

I’ve argued before that we have a very narrow tax base, and it looks like CNN might have me on their blog roll.  On their main page is an article with the headline “Nearly half pay no income tax.” The article is based on this longer piece written by the Tax Policy Center and Brookings Institution.  I haven’t read the think tank piece yet, but the gist of the article is that 47% of households, or 71 million households, will not owe any federal income tax.  That figure does not speak to payroll or state taxes, so the number of households that pays absolutely no taxes is lower.  24% of households do not pay federal income or payroll taxes.  Though the piece tries to maintain journalistic neutrality, it is clear that the author feels this is a problem.

And it clearly is a problem, but it’s not clear what the answer is.  It’s not like the families with little to no tax burden are also driving Cadillacs and eating foie gras.  More likely than not, they’re also on food stamps, WIC, and have credit card debt.  In other words, it’s not like most of the people who are not paying taxes can (easily) afford to do so.  Conservatives harp on government crowding out private economic activity, and this is a case where it would be precisely doing that.  A millionaire can afford an extra few thousand dollars in taxes, but for a family of four making only $40,000, more taxes mean less school supplies, worse food, etc.

On the other hand, we really do need to expand our tax base to afford the investment and social programs our country needs.  It’s hard to justify doing that, however, when income growth is nonexistent.  It’s a lot easier, morally and politically, to raise taxes when incomes are rising; since the past thirty years have only seen incomes rise significantly for the top 1%, it makes the most sense to raise taxes on them.  In other words, we have a pretty progressive income tax because we have socially narrow economic benefits.