Little Marco (Rubio) is right for once: The GOP tax bill does virtually nothing for the bottom 50% of American households, but his amendment to “fix” the problem reveals why the whole effort is so misguided and heading for fiscal calamity.
To wit, the lower 50% of US households pay virtually no income taxes—-accounting for hardly 3% of Uncle Sam’s total collection from that levy. So to modify an old saw, you can’t return blood back to a turnip.
During the most recent year (2015) there were 78.7 million tax filers with adjusted gross income (AGI) under $40,000, and these filers accounted for 52% of the 150.5 million total filers. But relatively speaking, the bottom half doesn’t have much income, to begin with, and when you cascade it through the tax filters almost nothing comes out at the bottom by way of tax payments to the IRS.
First, these 78.7 million filers had $1.448 trillion of AGI, which represented just 14.2% of total AGI of $10.2 trillion. But when you run these filers through the tax filter of deductions, exemptions, and credits, 45.8 million or nearly 60% of them owed no income tax at all.
While these filers did report $650 billion of AGI, here’s the thing: You can’t, obviously, give any of that back to them because their effective tax rate is already zero!
Next, the 32.9 million filers in the bottom half who actually did owe at least a dollar of income taxes— reported $800 billion of AGI (7.8% of the total). However, only $411 billion of this was “taxable income” owing to personal exemptions, the standard deduction etc.
Moreover, after application of the bottom bracket rates (mostly 10%) and tax credits (such as the $1,000 child credit) against computed liabilities, these tax filers ended-up paying the grand sum of just $45 billion in 2015.
Little Marco proposes to solve the problem with something called child credit “refundability” as we will dissect in a moment. But the above data on the bottom 78.7 million tax filers starkly reveal the brick wall the good Senator from Florida is running into, and why the GOP is barking up the wrong tree entirely in attempting to help the left-behind of Flyover America with deficit-financed income tax cuts.
To wit, the bottom half of taxpayers accounted for just 14.2% of the AGI, 5.7% of the total taxable income and merely 3.1% of total income tax collections ($1.46 trillion in 2015). In other words, the much maligned Federal income tax code actually filters out so much of the bottom half’s AGI that they end up paying just 3.1% of it to Uncle Sam.
In short, the current IRS code is tantamount to a get out of jail free card for the bottom half of income tax filers—permitting them, in the rhetorical idiom of the anti-taxers, to “keep” $1.403 trillion of their $1.448 trillion of AGI. That may be good or bad tax/social policy, depending upon your viewpoint, but what it surely ain’t is “oppressive”.
Then again, current tax law is not exactly confiscatory at the top end of the income ladder, either—even if any proposed cut gives rise to full-throated demagoguery from the Dems. In this context, it so happened that the 18,061 filers with AGI above $10 million in 2015 paid $140 billion in Federal income taxes.
Now, at first, glance that sounds like some kind of run-amuck progressivity since a tiny number of wealthy taxpayers comprising just 0.02% of the 78.7 million filers in the bottom half—- paid three times more in aggregate income taxes.
Still, it’s not exactly time to bring out the violins for the tax-oppressed wealthy. These same 18,061 fillers reported $539 billion of AGI. So when all the deductions, credits, deferrals and loopholes were applied, this tiny sliver of taxpayers at $10 million-plus AGI paid 25.6% of their income to Uncle Sam.
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