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7 Facts About Our Broken Tax System | The Nation

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George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

7 Facts About Our Broken Tax System

IRS

(AP Photo/Susan Walsh)

1. We don’t have a progressive tax system. A truly progressive tax system would ask those who are the most well-off in America to contribute the largest share of their income in taxes. Our federal taxes are progressive, but when you account for state, local and sales taxes, top-line taxation rate isn’t really progressive at all. The share of total taxes paid is roughly in line with shares of total income across all earning levels. (Chart via Citizens for Tax Justice)

2. We’re one of the least-taxed countries in the world. Though the animating impulse of much of conservative politics is that we’re over-taxed, total government receipts are less in the United States than they are in any other member of the Organisation for Economic Co-operation and Development, as a percent of GDP. (Chart via Center on Budget and Policy Priorities)

3. Not many companies pay the corporate tax rate—and some don’t pay any corporate taxes at all. Politicians and corporate lobbyists are fond of saying the US corporate tax rate of 35 percent is the highest in the world, which is technically true—but thanks to expansive tax loopholes, many corporations don’t pay nearly that much. Citizens for Tax Justice looked at consistently profitable Fortune 500 companies and found they paid 19.4 percent of their profits in taxes over the past five years. (Note that a single taxpayer earning $37,000 annually pays a 25 percent rate.) Many big companies don’t pay any taxes at all. (Chart via Citizens for Tax Justice)

4. Some of your tax dollars are given to hugely profitable companies. You’ll note in the chart above that these companies have a negative tax rate—meaning they actually get money from the government. This can come in the form of federal tax breaks and other preferential treatment of certain financial instruments. Then consider the subsidies given directly to industry, along with the safety net programs some of these companies force employees to rely on, and the number gets quite big.

Take Walmart, the largest private employer in the country. They take in $16 billion in profits annually. Yet, all told, Walmart cost taxpayers $7.8 billion last year, according to Americans for Tax Fairness:

5. Meanwhile, some people are actually taxed into poverty. Many high-profile conservatives like to complain about their supposedly oppressive tax rates. (Sean Hannity threatened to leave New York state because of the property taxes on his $3.6 million Long Island home.) But there’s one group—low-wage childless adults—who can literally be taxed into poverty.

Americans don’t start owing federal income taxes until they’re at the poverty line. Moreover, the government gives Earned Income Tax Credit to the working poor to offset their payroll tax burden, which eats up a large share of their earnings. That works fine for low-wage Americans with children—but the EITC is oddly structured in a way where childless adults receive only a paltry credit.

A childless adult earning poverty-line wages ($12,119 in 2013) would have a combined payroll and income tax liability of $1,139, but receive only a $169 EITC. This person would be below the poverty line once he or she pays taxes. That doesn’t line up with the credits received by families with children, as this chart from the Center on Budget and Policy Priorities shows.

President Obama has proposed a dramatic boost in the EITC for childless Americans.

6. Washington doesn’t like to address the deficit by raising taxes. There has been quite a bit of deficit reduction talk—and action—since 2008. Despite the fact that, as noted, government receipts in the United States are extremely low, a vast majority of the savings that DC has found has come from cutting things, not raising more revenue. (Chart via the Center on Budget and Policy Priorities)

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7. Much more revenue is out there. The Congressional Progressive Caucus has unveiled a budget plan that closes corporate tax loopholes and recoups lost taxes due to stashed overseas profits, and also contemplates a tax on Wall Street transactions. On tax day, the Progressive Change Campaign Committee unveiled 33,000 signatures in support of that budget. “It’s about fairness. It’s about people paying their fair share,” said Representative Raul Grijalva, co-chair of the CPC, on a press call.

In order to raise more tax revenue, corporations paying negative tax rates are a logical place to start, as are the very wealthy. They are the only ones seeing their income increase, rather than decrease. (Chart via Center on Budget and Policy Priorities)

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