- No-to-low income earners receive exponentially more in government benefits than they pay in taxes. And high-income earners pay the taxes that afford those benefits.
Following the passage of HB 1 to phase out the tax on work, progressive activists have predictably argued that the reform will shift the tax burden onto the poorest among us.
It’s populist bunk.
Not only do higher income earners pay the overwhelming majority of taxes collected at all levels of government, but low-income earners receive the overwhelming benefit of those taxes in government transfer payments.
People arguing otherwise nearly always: (1) focus on rare exceptions instead of the norm; (2) highlight one type of tax at one level of government instead of accounting for the broader tax system; and (3) ignore entirely the flow of taxpayer-funded government benefits to low-income individuals.
Top Earners Pay Over 80 Percent of Income Taxes
Federal and local income taxes comprise, by far, the largest pool of taxes collected in the U.S. They are also extremely progressive in design — meaning that higher income earners pay far higher rates.
According to IRS data, in 2020, the top quintile (20 percent) earned 56 percent of all income, but paid 81 percent of all federal income taxes. The bottom 50 percent of earners paid just 2.3 percent of federal income tax collections.
In 2021, individuals making over $50,000 in Mississippi paid 86 percent of all state income taxes. 77 percent was paid by workers making over $70,000.
This was before a 2022 tax reform package became law. The new tax law created the largest tax exemption in the country among states that tax income. A married couple can now earn up to $36,600 before incurring any state income tax liability. Mississippi’s median household income is $52,985.
With the heightened exemption from the 2022 law, a considerable portion of the state’s population is presently not paying any state income taxes. While the law cut rates for everyone, resulting in lower taxes for everyone, higher income earners are now paying a larger percentage of total collections moving forward.
Sales, Property Taxes
Some national organizations attempt to estimate the percentage of sales and property taxes paid by income bracket using some dubious methodologies that leave a lot to be desired. In fairness, this type of data is hard to come by and requires la fair degree of assumption and extrapolation from government surveys.
Some of these same organizations cherry pick what taxes and taxpayers they include in their analyses to arrive at the conclusion that nearly every tax code they evaluate is “regressive.” If retirees skew their results, for instance, they just don’t include them.
But apply commonsense. Wealthier people spend more money, meaning they pay more sales tax. They are more likely to own property and for that property to be of high value, meaning they pay more property taxes.
In Mississippi, 61 percent of sales tax collected comes from the wealthiest 12 counties. 54 percent of the assessed property value comes from those same 12 counties.
Still, the argument goes that sales taxes are “regressive” because low-income earners feel it more as a percentage of their total income.
Of course, the same could be said of any product purchased. A can of tomatoes is a bigger percentage of a low-income earner’s wages than that of someone who makes more. Still, few people seriously suggests that the price of items purchased should fluctuate, not based on their value, but based on the wealth of the purchaser.
Notably, our tax code does make allowances for purchases by low-income individuals. For instance, the state applies no sales tax to grocery purchases made with food stamps. And HB 1, which just passed, lowers the sales tax applied to groceries by nearly 30 percent.
Tax Collections Only Part of the Equation
The Tax Foundation’s analysis of federal, state and local income taxes found that the top quintile paid $3.23 trillion in taxes nationally. The bottom quintile paid $142 billion. If you are doing the math, that’s a 22X difference.
Even that gap is misleading, though. Because government does not only collect revenue, it redistributes it. The overwhelming beneficiaries of this redistribution are no-to-low income earners. According to The Tax Foundation, the poorest quintile of households received net government transfers of $1.27 for every dollar earned — an income tax rate, on average, of negative 127 percent. Individuals in the second quintile are also net recipients of government transfers, with an average negative tax rate of 31 percent.
The Congressional Budget Office performs a similar analysis in its publication “The Distribution of Household Income.” The CBO looks at the net effect of both taxes and government benefits on income. This holistic analysis shows who actually pays and who actually receives.
The net effect of taxes and government benefits to the lowest quintile of earners in 2020 was a $23,900 (or 110 percent) increase in income, on average, to $45,800. The net effect of taxes and government benefits to the highest quintile of earners was an $82,100 reduction in income.
In short, no-to-low income earners receive exponentially more in government benefits than they pay in taxes. And high-income earners pay the taxes that afford those benefits.
Russ Latino
