The Truth About Taxes

Basics

The income tax on individuals and the payroll tax, which is deducted from workers’ wages and used to help finance Social Security and Medicare, each made up about 40 percent of federal revenues in 2010. The federal government also collects revenue from corporate taxesexcise taxes, and other sources.

Policy Basics:
The Child Tax Credit
The 2001 and 2003 Tax Cuts
Where Do Our Federal Tax Dollars Go?
The Estate Tax
Deficits, Debt, and Interest

The Truth

Raising Today’s Low Capital Gains Tax Rates Could Promote Economic Efficiency and Fairness, While Helping Reduce Deficits

The large tax preferences that capital gains enjoy over “ordinary” income, such as salary and wages, add to budget deficits, widen income inequality, and do little if anything to promote economic growth. Recent bipartisan deficit commissions have called for eliminating or sharply reducing these tax preferences, as the landmark 1986 Tax Reform Act did. By doing so as part of a package that reduces deficits and reforms the tax code, policymakers could help put the nation’s fiscal house in order and make the tax code fairer and more efficient. Read more.

Misconceptions and Realities About Who Pays Taxes

Statistics about the share of U.S. households that pay federal income taxes are sometimes cited as evidence that low- and moderate-income families do not pay sufficient taxes. Yet these figures, their significance, and their policy implications are widely misunderstood.

  • These figures ignore the substantial amounts of other federal taxes — especially the payroll tax — that many of these households pay.
  • Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers.
  • Moreover, low-income households as a group do, in fact, pay federal taxes. These households also pay substantial state and local taxes.
  • When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average.

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This info is taken from The Center on Budget and Policy Priorities

The Center analyzes major tax proposals, examining their likely effects on the economy and on the government’s ability to address critical national needs, especially over the long term. They place particular emphasis on the effects of tax proposals on households at different income levels.  In addition, they analyze trends in the level of federal revenues, income distribution, and tax burdens.

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