The rich deserve an income tax cut more than you do.
While that’s probably the least popular opinion in Nevada about the tax-reform outline President Donald Trump’s team released last week, the numbers show it’s true.
In 2016, the Congressional Budget Office estimated that the effective income tax rate of the bottom 20 percent of households by income is -7.2 percent. For households in the second quintile, the rate was -1.2 percent. No, you’re not seeing things. That really is a negative sign in front of both those rates.
Remember Mitt Romney’s comment that “47 percent of Americans pay no income tax”? It’s true, but the contrast is more stark than that. The IRS is giving most of those folks money back via tax credits.
If the IRS pays you, you can’t get an income tax cut.
The middle class makes out pretty well under the income tax too. The child tax credit is a boon to the middle class. It’s a $1,000 refundable credit for every dependent child that phases out for higher income earners.
Consider a Clark County household of three, where the median household size is 2.75, earning Nevada’s median household income of $52,431 in 2016. This married couple with one child is in the 15 percent bracket, but their income tax bill would have been $2,225, or 4.4 percent of their income.
That family, just like the lowest 90 percent of income tax payers, pay proportionally less of the country’s taxes than they earn of the country’s adjusted gross income.
That’s because the income tax soaks the rich. The top 5 percent of taxpayers pay 58.5 percent of income tax revenues, compared with earning 34.4 percent of the country’s income. The often-attacked 1 percenters pay 37.8 percent of the income tax on 19 percent of the income. Meanwhile, the bottom 95 percent of taxpayers pay 41.4 percent of income tax revenues on 65.6 percent of the income.
This is the political problem facing Trump. It’s hard to sell income tax cuts for those who pay most of the taxes — the rich — to the 90 percent of voters who in the middle or lower classes. It’s not that the rest of us aren’t paying taxes. Many of us pay Social Security and Medicare taxes that are higher than income taxes.
Rich taxpayers are wary of changes, knowing that losing their deductions may lead to them paying an even more disproportionate share of the income tax. Remember that the average single mom making $30,000 a year doing her taxes online pays less proportionally than the average millionaire, despite the millionaire’s ability to hire an army of accountants.
Trump’s outline contains promising elements. Reducing the number of tax brackets and eliminating deductions are good policy. Allowing residents of California and New York to deduct their state income tax payments should be the first thing to go.
But a promise of “tax relief for American families, especially middle-income families” is going to be hard to keep when the rich are paying most of the income taxes.
Victor Joecks’ column appears in the Nevada section each Monday, Wednesday and Friday. Contact him at email@example.com or 702-383-4698. Follow @victorjoecks on Twitter.
A pervious version of this column incorrectly stated the percentage of taxpayers who pay 41.4 percent of income tax revenues on 65.6 percent of the income.