Taxes matter. That ought to be self-evident, especially on a day like today, when the entire nation faces a deadline for filing income tax returns. But some of the folks involved in budget talks in Washington don't seem to fully understand the concept.
Last weeks' economic reports ought to have driven the matter home. Retail sales and consumer confidence are falling. As the Reuters news agency put it, this was "a sign that tax hikes early this year stole momentum from the economy."
Those hikes came primarily in the payroll tax that funds Social Security. They were, in fact, a reinstating of the tax level that existed before Washington temporarily reduced them in order to help struggling workers deal with the effects of the great recession. But their effect on consumer spending and confidence is a good sign the economy is still shaky. Other tax hikes on the wealthiest Americans may not have affected consumer spending as much, but it likely still had an impact, and it certainly affected job growth.
Sequestration, or the automatic budget cuts that came about as a result of Washington's inability to agree on real budgetary reform, also had an effect. This was widely anticipated ahead of time, but it is likely to be temporary — although the negative effects may accelerate for a time as the impact of the cuts is felt through job losses and reduced contracts.
Of interest as well today should be a report from the Tax Foundation, released late last week. It provides a detailed breakdown of federal income taxes in terms of who pays and what, if any, inequalities exist. The results may surprise many Americans.
The report said the United States has the most progressive tax burden of any industrialized nation. The wealthiest 10 percent of the nation pays a larger share of the income tax burden than similar earners in other nations, including France, Italy and Sweden. The opposite also is true. The poorest Americans have the lowest tax burden of any industrialized nation. Many Americans can expect to qualify today for a tax refund that exceeds the amount of taxes withheld from their paychecks during 2012. The report includes the example of a family of four earning $45,000 that could use standard deductions, the earned income tax credit and child tax credits to receive $637 more in return than their entire tax liability.
In addition, the report found that the income tax system has grown more progressive over time. The much-publicized bottom 99 percent of taxpayers now pays on average less than 10 percent in income taxes, which is the lowest level since before the 1986 Tax Reform Act was passed.
The report raises questions about the wisdom of so many Americans being disconnected from the primary means of funding government. It is particularly disturbing in light of how all the money collected by the deadline today won't come close to meeting federal liabilities.
If nothing else, however, the report and the dismal economic picture released last week ought to inform the debate over whether the wealthy should be made to pay more or whether government should be cut. They also ought to inform discussions about tax reform, with an eye toward ways to create jobs and revive consumer spending.
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