By now you must know that half of all income taxes are paid by 5 percent of all taxpayers. No one seems very agitated about this, especially these days when income inequality is such a hot topic along the campaign trail.
Should we be concerned about the top-loading of our income-tax distribution? We should, but not out of pity for all those investment bankers with their huge bonuses. The real problem lies at the other end of the scale. We should be uneasy about the threat to our democratic system presented by the fact that a large and increasing percentage of all voters pay little or no income taxes.
Throughout the last two decades, Congress – Democrats and Republicans alike – has steadily raised the no-tax threshold, excusing more and more voters from paying the cost of running their government. We are now closing in on the tipping point – the point where 51 percent of all voters pay little or no income taxes.
The implications are ominous: Once a majority of voters have no personal stake in the cost of their government, self-interest will lead them to elect representatives who will increase entitlements without limit. That’s where the system goes ballistic, needing more and more tax revenues – always to be paid by someone else – to support more and more services. If the majority could put the whole load on Bill Gates, they would, but that wouldn’t work, so taxes on the minority will have to rise. And rise.
It wasn’t supposed to be that way. But a century of income taxes, the graduated kind, has inevitably brought us here. Candidates demagogue the issue, pushing for more “progressive” taxes, in effect promising more voters a free ride. The latest variation on the theme is to promise to rejigger the tax laws to bring relief to the middle class, which is usually undefined but assumed to be wherever the votes are. (One remembers Speaker of the House Tip O’Neill setting the upper boundary of the middle class at an income level of $50,000 a year, a mindset that led Congress to impose the Alternative Minimum Tax.)
We are on a slippery slope. It may be too late to head off the threat to our democracy that our lopsided tax distribution system poses. Our only hope is that a card-carrying liberal Democratic president comes out strongly in favor of a flat tax. Only he (or she) could make it happen.
Don’t hold your breath.
