Commentary

Paying Taxes for Months on End

This article appeared on Townhall.com on May 16, 2005.

WASHINGTON - We are finally done paying taxes. The average American finished on April 17, two days after the filing deadline.

But residents of high-tax Connecticut had to pay until May 3. They spent more than one-third of the year working for the government.

Tax Freedom Day, as the Tax Foundation styles it, occurred on April 17. That’s when people paid off all taxes to all levels of government.

It was two days later this year than in 2004. It could have been worse, however.

The Bush tax cuts pushed back Tax Freedom Day from May 3 in 2000 - a record, exceeding the tax burden even during World War II.

But residents of Connecticut were still paying until May 3.

Citizens of Washington D.C. worked for government through April 30. New Yorkers paid until April 29.

Other high tax states include Massachusetts, Wyoming, Maine, Rhode Island, Washington, and California. In sharp contrast are Alaska, at the bottom at April 2, several southern states, Idaho and North Dakota.

Americans have to spend more time working to pay their taxes than to buy other goods and services. For instance, the average American puts in 70 days to cover federal levies - and 65 days for home and household expenses. Health care clocks in at 52 days.

State taxes run 37 days, more than transportation, food, or recreation. We work only two days to accumulate the money that we save. That’s another good argument in favor of creating private Social Security accounts.

Critics of tax cuts like to denounce “tax cuts for the rich,” but what they really oppose is tax cuts. The payroll tax is a bad tax for many reasons, but is linked to Social Security benefits, which are slightly skewed to low wager earners. “Sin” taxes usually are regressive, but that simply means that more poor people smoke, for instance.

Most political battles occur over income taxes. But any fair income tax cut will benefit those who actually pay income taxes.

Many low income people don’t. Explains the Tax Foundation, “Thanks largely to the new child tax credit and the earned income tax credit, approximately 40 million taxpayers owe nothing for the entire year.”

Moreover, a general cut will obviously most benefit those who pay the most. Who are - surprise! - those who earn the most.

Indeed, the vast majority of income tax collections come from those who are better off, if not exactly “rich.”

For instance, in 2002, which offers the most recent data, the top 1 percent of taxpayers paid 33.7 percent of federal income levies. The top 5 percent accounted for 53.8 percent of collections.

The top 10 percent paid 65.7 percent. The top 25 percent kicked in 83.9 percent. And the top 50 percent paid 96.5 percent of all income taxes collected.

Put another way, the bottom half of Americans contributed just 3.5 percent of total income taxes. No wonder they don’t get most of a “tax cut” when they don’t pay much in taxes.

Ironically, the burden on wealthier Americans has actually increased because of the Bush reduction. They would have been paying more money without the cut, but the bottom 50 percent of earners would have been paying proportionately more.

The cost of the income tax is not just money. There’s also time. We devote more than 1 billion additional hours to tax preparation today than we did a decade ago, for a total of 6.6 billion hours.

Income taxes are necessarily intrusive, allowing government to audit not only one’s work but one’s life. And by encouraging endless tax avoidance and tax shelter activities, the income tax generates inefficiencies throughout the economy.

So America needs serious tax reform emphasizing both reduction and simplification.

The other reform that America badly needs is on the spending side. Far too many federal outlays cannot be justified by any public interest test. Uncle Sam has proved to be a soft touch.

Washington routinely doles out welfare to profitable corporations. The group Citizens Against Government Waste counts 13,997 pork barrel projects already approved for 2005 at a cost of $27.3 billion, yet the “emergency” supplemental recently passed by the Senate adds even more.

The biggest spending programs, Medicare and Social Security, target the middle class rather than the poor. More military resources go to subsidize prosperous and populous allies than defend Americans.

Thankfully, Tax Freedom Day has come, even for residents of Connecticut, who bear the nation’s highest tax burden. But no American should have to spend a third of his or her time working for the government. The campaign for real tax relief and tax reform has barely begun.

Doug Bandow is a senior fellow at the Cato Institute.