The left-wing Tax Policy Center reported that in 2021, 57% of Americans pay no federal income tax.
The reason this staggering statistic is higher than usual is the myriad of “stimulus” checks handed out by the IRS over the past year. These checks more than offset the income taxes paid or withheld from the average American’s paychecks.
Of course, even Americans who apparently paid no income taxes are now paying the price for those deficit-funded stimulus checks in the form of 8.5% inflation. And in addition to income tax, American workers – directly or indirectly – pay many other taxes, from payroll tax to tariffs.
Americans today pay more federal taxes as a percentage of gross domestic product than the historical norm.
The federal government is not suffering from a lack of taxpayers’ money. Basically, the government has a spending problem.
In 2019, Americans collectively paid more taxes than food, clothing, and shelter combined. And unless Washington changes course, taxes will eat up an increasingly larger share of household budgets in the future.
Over the past decade, the federal debt has nearly doubled to over $30 trillion due to reckless spending by Congress. It is a burden that all Americans share.
There are two real solutions that Congress must adopt for a more fiscally sound and economically prosperous country.
First, Congress needs to tackle its out-of-control spending. Public spending has increased by 266% over the past 20 years compared to GDP growth of only 112% over the same period. The main driver has been the growth of rights programs.
Over the past 20 years, Social Security spending has fallen from $433 billion to $1.1 trillion. Other programs grew even faster, such as Medicare, which more than tripled from $217 billion to $696 billion.
Income security programs have grown more than six-fold over the past two decades to more than $1.6 trillion, making it the biggest spending item in the entire budget in 2021. that some of this growth has come from the pandemic, the trend is true for all major social programs: spending growth has far outpaced inflation and GDP growth.
Second, to reduce the unnecessary burden on the American people, Congress should fix the broken US tax code, which is inconsistent and inconsistent. Like a parody of Frankenstein’s monster, the tens of thousands of pages of US tax rules are pieced together at random.
The federal government does more than impose income tax. There is also the payroll tax, a 15.3% payroll tax split between the “employer contribution” and the employee payroll deduction. The employer’s contribution is supposed to be paid by the companies.
However, since all employers face this tax to pay employees’ salaries, it drives down market wages, leaving workers to bear the brunt of both sides of the payroll tax in the form of wage lower initial salary and a lower net salary.
There are fuel and other excise taxes, death taxes, capital gains taxes, and tariffs, not to mention many onerous taxes imposed by states and local governments. American workers even bear the brunt of corporate income tax.
The result of our patchwork system of taxation is that it leaves most Americans unaware of how much tax they are paying or the extent of their economic harm.
One of the biggest problems with the current income tax system is the inclusion of hundreds of tax breaks for politically advantaged entities that distort markets and allow the government to pick “winners” and subject others to unequal rules of the game.
Too often, the winners are those with a strong political lobby.
Congress must create a neutral tax code and eliminate tax credits and other provisions that provide tax advantages to specific political interests or certain activities. This will reduce outside influence and allow for a more level playing field for everyone, including ordinary American taxpayers who lack political clout.
Our failing tax system is a huge burden on the economy. Taxes distort prices and divert resources from more productive activities to less productive activities with tax advantages.
An unnecessarily complex tax code also directly consumes Americans’ time and resources—Americans spend at least 6 billion hours a year navigating convoluted tax rules that span tens of thousands of pages. Every hour spent on tax compliance is an hour that Americans cannot devote to more productive or worthwhile activities.
The current tax code may work well for accountants, lawyers, lobbyists, and certain special interests, but it generally doesn’t work well for Americans, rich or poor.
Policymakers should craft legislation that restores the neutrality and transparency of the tax code and ensures more equal treatment for all Americans. The tax code should not be just another tool for Washington residents to influence every aspect of American life and business.
Congress should take responsibility for its overspending and the broken tax code it built, instead of asking the American people to pay for Washington’s irresponsible policies.
This piece originally appeared in The Daily Signal