Is the US tax system fair?

The US tax code has almost always been progressive, meaning the richer you get, the higher percentage of your income you have to pay to Uncle Sam. The fight is usually over where to draw tax brackets, though some say it's time to change that.

Patrick Fallon/Reuters/File
Activists, labor unions, and Occupy L.A. protesters march on Tax Day in Los Angeles on April 17, 2012.

Some questions are unanswerable. What’s truth and beauty? Will the Cubs ever win the World Series? Is the federal tax system fair?

Yes, we’re here to talk about that last one. Aesthetes and sports fans will have to look elsewhere for a discussion. Tax fairness is a hot topic at the moment due to competing Republican and Democratic visions for America’s fiscal future. Yet what’s “fair” is not something that can be determined with mathematical precision. One’s outlook on this issue depends on personal values and, perhaps, one’s personal income. There is only one aspect of taxation on which all taxpayers agree: If we could lay the entire burden on somebody none of us knows, that would be a great system.

How’s that old senatorial saying go? “Don’t tax me, don’t tax thee, tax that fellow behind the tree.”

That said, we’re going to attempt to lay out some meaningful context for this question. The first point is that the fairness discussion is meaningful, if endless. Voter perception of the federal tax system’s perceived equity is a powerful driver of US political outcomes.

“Every major [tax structure] change in the last 200 years has been prompted and shaped by an argument over what’s fair,” said Joseph Thorndike, director of the Tax History Project at the nonprofit organization Tax Analysts, at a June 15 roundtable discussion on taxes and the rich.

The second point is that in the United States the federal tax code has almost always been progressive. That means the richer you get, the higher percentage of your income you have to pay to Uncle Sam. The federal income tax began as a levy on the wealthy. When it was expanded to a tax that burdened the mass of Americans, politicians sold the move partly by saying that the wealthy would still pay proportionately more.

“Progressive taxation really lies at the heart of what our system is,” said Mr. Thorndike at the tax roundtable.

Proponents of a flat tax would argue against this notion, saying it’s inherently unfair to take a bigger bite of someone’s income just because that income is large. But, in general, the heat in US tax fights has been over where tax brackets should fall on the income scale, not whether there should be tax brackets at all.

The third point is that federal taxes are progressive at the moment. The adjective that goes in front of “progressive” depends on your point of view. It could be “fairly," modestly," "highly," or barely."

According to figures compiled by the Tax Policy Center, a joint enterprise of the Brookings Institution and the Urban Institute, the richest 20 percent of Americans faced an effective federal tax rate of 28.6 percent in 2011. (That’s a combination of income taxes, payroll taxes, estate taxes, and a few others.) The tax rate for the next quintile down was 22.1 percent. The middle quintile tax rate was 19.1 percent. At the bottom, the poorest 20 percent of Americans paid a 5.3 percent effective federal tax rate.

That’s just the rate, remember. Since richer people are also different in the sense that they have more money (duh), their share of the total dollars collected by the US government is even greater. They’re paying a higher rate on higher incomes.

Thus in 2011, the richest 20 percent of Americans paid 65 percent of all federal taxes, according to the Tax Policy Center. The next quintile down paid 18.5 percent of all federal taxes. The middle quintile paid 11.2, and so forth down the chain to the poorest quintile, which paid 5.3 percent.

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