Tax Day Myths Debunked

It's that day again. The day when people who actually care about a functioning government pay their taxes and self proclaimed "patriots" walk around in silly costumes protesting that their taxes are too high, even after receiving tax cuts over the past year. They do this, in part, because they believe the lies and misdirection given to them by those who would manipulate them and echoed by the uncaring news media outlets.

1) "47% of Americans pay no federal income tax."

While this statement, word for word, is factually true, it is incredibly misleading. The key word in this phrase is "federal income tax." Federal income tax is only one of many taxes people pay: there are also payroll taxes, state and local income taxes, property taxes, and sales taxes. Payroll and sales taxes are much more regressive than income taxes and are designed so that lower income earners pay more, as a percent of income, than higher income earners. If you include all taxes paid, the United States already has a largely flat, non-progressive tax system: the lowest earners pay about 14-15% of income, and the highest earners pay about 15-16% of their income.

2) "The top 10% of earners pay 71% of federal income tax revenue."

Again, while roughly accurate, this is even more misleading than the first myth. The problem with this myth is that it assumes income is even distributed across earners. Instead, the reality is that the top one tenth of one percent of Americans earned as much as the entire bottom 50% of Americans. Let me repeat that: 300,000 Americans earns as much as 150,000,000 Americans. And those numbers are based on only what the IRS can actually capture, which it admits is about 70% of income from investments. So when you hear the top 10% pay a large chunk of income returns, remember that that is actually a low compared to the actual income disparities.

3) "Democrats are raising taxes."

This is abjectly false. In 2009, the average tax refund was 10% higher than 2008. Between the "Making Work Pay" tax credit ($300-500/person), the first time home buyer tax credit (about $8000), the various greening tax credits (insulation, windows, etc.) and many others, taxes have been cut significantly. This was done for the express purpose of increasing money on hand as part of the federal stimulus program.

If you have any more myths you'd like me to tackle, add them in the comments.