EDITORIAL: Ugh! Here comes tax day

Monday is Tax Day, the deadline for most wage earners to file federal returns with the IRS. Coincidentally, Monday is also Tax Freedom Day, the point at which the wages of all U.S. workers, as a whole, are enough to cover the nation’s income tax burden.

The issue of taxes in general and the federal income tax in particular continues to generate robust debate. But there seems to be a mountain of confusion about who actually pays what. Democrats relish bandying about the term “fair share” without ever defining the amorphous concept. Is it fair for the government to demand half the earnings of a well-paid doctor or attorney?

In fact, an analysis from the left-leaning Urban-Brookings Tax Policy Center concluded that 57 percent of U.S. households paid no income taxes in 2021. The figure was unusually high thanks to pandemic-related relief in the form of tax credits and direct payments to individuals and households. But even in 2019 that number was 44 percent.

Low- and middle-income workers pay other taxes and fees, of course, including regressive state and local sales taxes, excise fees and federal Social Security and Medicare levies. The cumulative effect can be crippling for those struggling to get by even if they do escape the federal income tax. And, for the most part, they do.

Before the pandemic, in 2019, the Tax Foundation reports, IRS data revealed that the top 50 percent of all taxpayers paid 97 percent of all federal income taxes. The top 1 percent of wage earners paid a greater share of individual income taxes than the bottom 90 percent combined. In addition, the highest earners pay the highest effective rates. The top 1 percent of earners in 2019 paid an average rate of 25.6 percent, while those in the bottom 50 percent paid an average rate of 3.5 percent.

In other words, the U.S. income tax system is highly progressive.

President Joe Biden’s new budget proposal seeks to make the system even more so. Not only would the White House raise the top federal rate to nearly 40 percent, the administration would create a new levy on the “unrealized” capital gains of wealthy Americans — essentially taxing the increased value of assets before they are sold. The president insists that this creative mechanism for generating government revenue will never be applied to anyone but the super-rich.

History tells a different tale.

When Congress created the income tax after the ratification of the 16th Amendment in 1913, average Americans were assured they would never fall under its regulatory rubric, that it would apply only to millionaires. Within four years, however, lawmakers had increased rates and lowered the income threshold to ensnare more workers. Decades later, in 1969, Congress passed the “alternative minimum tax” in an effort to capture revenue from a small number of wealthy filers who used loopholes to eliminate their federal obligations. By 2017, more than 5 million filers — many of them of more modest means — found themselves under the levy’s thumb.

“Taxes are what we pay for civilized society,” Supreme Court Justice Oliver Wendell Holmes wrote in 1927. There is certainly truth to that. It takes money for the federal government to meet its constitutional obligations, to protect the nation and to uphold the liberties of its citizens.

But it’s also true that a healthy, thriving private sector has made the United States the wealthiest nation in history. Taking excess money out of the hands of job creators, entrepreneurs and investors and turning it over to the federal bureaucracy undermines the conditions necessary for long-term prosperity. That’s worth remembering as we continue the debate over what constitutes the fairest, most just tax system.