Tax disparity

Nothing is certain but death and taxes, according to an American saying. Despite that, it is true that not everyone pays taxes, and those who do are at times unfairly seen as if they were not taxpayers.

It is common but wrong to claim–like presidential candidate Mitt Romney once said–that 49% of Americans do not pay taxes. There is a percentage of people who do not contribute to federal income taxes because their incomes are very low. However, they pay various state taxes in addition to payroll deductions for Medicare and Social Security. For these two contributions, people with middle and low incomes pay a bigger percentage of what they earn than those who are better off.

Retirees are among those who do not pay federal income taxes, because they lack income–as well as people who are experts at tax evasion. In the corporate sector, for example, a Government Accountability Office study found that each year between 1998 and 2005, almost 55% of large corporations did not pay corporate income taxes. In 2011, the Tax Policy Center estimated that 4,000 households with incomes over $1 million did not pay taxes either.

We need tax reform, even if there is no political consensus on what its characteristics should be.

If the political goal is cutting the deficit, the way to do it is by raising the rate to 39% for the highest earners. Bill Clinton did so in his time and Barack Obama did it last year without an economic catastrophe, like conservatives anticipate every time there is a proposal to raise taxes.

What it is all about is increasing revenue for the federal coffers in an equitable way in order to provide basic services like education and public security, among others, and to have a social safety net in a society where income disparity has reached historic records.