July 15, 2015
As originally published in the New Hampshire Union Leader
Today is the Ides of July — or Quintilis if you aren’t fond of Julius Caesar –and a good time to remind us all what we do and don’t know about taxes — that perennial political football. Tax myths abound and all too often color political debate. But a look at tax data tells us more about our economy and system than the insipid polemics that disease what passes for public discourse.
The individual income tax provides about half of all revenue for the federal government. In 2015, the individual income tax will provide $1.48 trillion, about 46% of all federal revenue. By contrast, corporate income taxes provide 10% of federal revenue, $341 billion in 2015.
Corporate taxes are also much more volatile. in the recession they plummeted to less than half their previous value and have increased by 147% since 2009. Individual taxes fell during the recession by just 22% and have climbed by 61%.
Individual income taxes are also much more progressive than you think. A huge percentage of Americans pay no income taxes at all — though of course they do pay other taxes like payroll taxes. in the tax year 2010, the most recent for which we have this calculation, 41% of tax returns had no liability or negative liability, up from 25% of returns just 10 years prior.
Remember though that those people aren’t outside the system altogether. They still pay payroll taxes if they work at all and other federal excise taxes.
By the way, this calculation has nothing to do with whether or not you got a refund — a refund is just the difference between your liability and pre-payments withheld.
The income tax is also much more progressive then you think. The much reviled top 1% of earners paid 38% of income taxes even though they only made 22% of all income. The progressivity follows at every level. For example, the top 10% of taxpayers made 48% of income but paid 70% of taxes. In contrast, the bottom 50% made 11% of income and paid just 2.8% of taxes.
By the way, to be in the top 25% of taxpayers in 2012 you needed a family income of $73,300 while a $125,200 would put you and your family in the top 10%.
The system is not just relatively progressive but getting more so. Ten years prior, the top 1% paid 33% of taxes not 38% and the top 10% of earners paid 64% not 70%. Go back even further, before the Reagan reforms of the 1980s and you find that thirty years ago the top 1% paid 19% (now it’s 38%) and the top 10% paid 45% (now it’s 70%). Much more progressive indeed!
In New Hampshire, we filed 680,000 federal income tax returns with total taxable income of $32.3 billion. That led to New Hampshire residents paying $6.1 billion in federal income taxes in 2012. In that same year businesses, residents, and non-residents paid a combined $3.1 billion in state and local property taxes in New Hampshire.
The businesses we work for paid an additional $554 million in the state’s combines business tax in the comparable fiscal year. The business taxes were paid by the firms that employ approximately 95% of us.
Most nominal businesses aren’t really businesses. About 77% of them are called non-employers — for most of them an accounting or tax filing tool to account for some sideline self-employment income.
The 4900 firms (3.7% of the nominal total) that have at least 20 employees account for 80% of the jobs. Just13,500 employers have at least 5 employees make up 95% of the jobs.
And that’s the average number of companies that have paid the Business Profits Tax over the last few years (15, 865 last year). So the companies paying the state’s business taxes account for 95% of the non-government jobs in New Hampshire.
Over the last twenty years, business taxes are becoming worse and worse. Since 1995, they have risen from just 14% of the state’s operating budget to 25% this year. We don’t rely on our largest revenue source to the same extent the federal government does but we’re getting there.
You needn’t fear the Ides of July like old Julius was troubled by March but the next time someone pontificates on taxes you might want to look behind the numbers.