It’s surprising that a debate has erupted recently around who does and does not pay taxes, because all of us pay taxes, whether we fall on the low-end, middle, or high-end of the income scale. Part of the confusion perhaps stems from the fact that most people tend to think in terms of income taxes when considering how much they pay in taxes. But it’s important to remember that we pay many other kinds of taxes, too. If you buy toilet paper or toothpaste – and who doesn’t? – you pay the sales tax. If you drive, you pay fuel taxes. If you drink beer or wine, you pay alcoholic beverage taxes. Even if you rent rather than own your home, some portion of your rent goes toward your landlord’s property taxes.
These state and local taxes make up a much larger share of the taxes that low-income households pay. Nationally, among households with incomes in the bottom fifth of the distribution, more than three out of four of the tax dollars paid go toward state and local taxes; the remainder goes toward federal taxes, including the federal income tax and payroll taxes. In contrast, the taxes paid by middle-income households are split roughly equally between federal taxes and state and local taxes, while higher-income households tend to pay more of their tax dollars in federal taxes.
We’ve said it before, but it’s worth saying again: State and local taxes cut deeper into the incomes of California’s lowest-income households than middle- and high-income households. It’s easy to see why. Take the sales tax in the city of Sacramento, for instance. Every family in the state capital buys soap, toothpaste, and other basic household necessities and pays the same 8.75 percent tax rate on those items. Even families with incomes below the poverty line pay the sales tax on these necessities. But the amount of tax paid makes up a larger share of the income for a family supported by a minimum-wage worker earning just $320 per week than a family supported by a physician bringing home 10 times that income. Indeed, California’s households in the lowest fifth of the distribution pay twice the share of their incomes in state sales and excise taxes as do households in the second-highest fifth of the distribution.
For a humorous take on the “who pays” debate and the bogus claim that some families don’t pay taxes, check out The Daily Show’s commentary here.
— Alissa Anderson