There seems to be a lot of discussion out there about who pays taxes, who doesn’t, and passing responsibility for raising tax money to the states for funding critical programs. The Center on Budget and Policy Priorities has a new fact sheet out that helps to clarify some things.
With all the debate happening, I think it’s worth digging in and looking at some of the complexity of what’s really happening within our highly complicated tax code. The story of “federal” vs. “state” taxes isn’t at all clear-cut: federal dollars often go to state and local programs. Conversely, if federal dollars cannot cover a program, states and municipalities are left to raise the funds (and often with regressive taxes). Also, some taxes collected at the state level, such as a portion of fuel taxes, go into federal trust funds for highways or other corresponding purposes. Government funding and tax collection is a highly complex, overlapping, and interconnected web.
Since I’m writing this down, I’ll go ahead say some other things that come to mind with all this. I’ve found that a lot of people don’t really understand FICA. FICA funds Social Security and Medicare, and you see amounts deducted from all of your paychecks. Current rates are 4.2% of your pay is deducted to fund Social Security and 1.5% for Medicare, and your employer has to match those contributions. If you’re self-employed, you are responsible for paying the full amount, plus a certain percentage. Another catch is that Social Security deductions are only for an annual salary of up to $110,100. As in, if you make ten million dollars annually, you only pay Social Security based on the first $110,100 that you earn.
But FICA is not federal income tax; this is the payroll tax that is being discussed, which funds the U.S.’s largest entitlement programs: old-age, survivors, disability, and medical care for the elderly. Medicaid, another large entitlement program, is funded by states with the assistance of federal matching dollars. So what’s important to know here is that federal income tax simply isn’t the big money behind these large entitlement programs.
Also, if you’re not acquainted with Earned Income Credit (EICs), you should look it up. I think it’s a really interesting program, but I honestly haven’t studied the data to make any hard analysis of them. What I do know, however, is that there is such a breathtaking number of families and individuals who qualify for EICs but do not know to file for and receive these credits that the IRS requests volunteers each year to help low-income people file their taxes to receive these credits (you can volunteer to do this in NYC through New York Cares).
Which is all to say that everything is so much more complex the closer you look at it. And behind each citizen counted amongst these statistics is a person and a story.
I say all of this, of course, as someone who isn’t paying federal, state, or city taxes for most of this year that I am deployed in Afghanistan. I rely completely on the government for my food, housing, medical care, and even my clothing. I also feel pretty entitled to it right now. If I have any health problems in the future connected to what’s going on with me this year (or during my other two tax-free years), I might also feel entitled to government health care then, too. Just saying.