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Four Common Tax Confusions

Quick comebacks to the regressive tax rhetoric you hear on the radio and around the dinner table.

Taxes are the price we pay to live in a civilized society. It’s that time of year when we talk about taxes with our friends, neighbors, and family. But there are a lot of misconceptions out there, and our biggest tax problem — that the very wealthy and our largest corporations have reduced their taxes, shifting obligations onto everyone else — often gets obscured. Facts don’t always work to change people’s minds, but sometimes they break through. Try these.

1. “The Rich Are Paying More and More Taxes”

Wrong. Wealthy individuals today pay about half of what they paid in taxes a generation ago. Top tax rates have fallen from over 90 percent in the 1950s to under 40 percent for the last decade. As a result, the wealthiest 0.1 percent — the top one in a thousand households — used to pay an average effective rate of 60 percent. Today they pay between 25 and 30 percent of their income in federal taxes.

See for yourself: For a history of tax rates and revenue, see the IRS Historical Tables, IRS data on top income tax rates, the Joint Committee on taxation report on income tax rates, or this report from the National Taxpayer Union

2. “Those Corporations Are Forced Overseas by High US Corporate Income Taxes!”

Some people have heard about the Panama Papers and corporate tax dodging and go “ho hum” because they believe corporations move offshore because “US corporate taxes are the highest in the world!”

The statutory US corporate income tax rate does stand at 35 percent, but the actual annual effective rate corporations pay runs about 27.1 percent, a rate lower than the OECD average for industrialized countries. Some large corporations, using offshore tax havens and aggressive tax avoidance techniques, have gamed their taxes down considerably below that 27.1 percent figure.

The largest 288 profitable corporations among the Fortune 500 paid an average effective federal tax rate of 19.4 percent between 2008 and 2012. General Electric, Boeing, Verizon, and 23 other profitable Fortune 500 firms paid no federal income taxes between 2008 and 2012.

See for yourself: Read “The Sorry State of Corporate Taxes: What Fortune 500 Firms Pay (or Don’t Pay) in the USA and What they Pay Abroad — 2008 to 2012.” by Citizens for Tax Justice. Also check out “International Corporate Tax Rate Comparisons and Policy Implications.” by Congressional Research Service.

3. “Don’t Corporations Pay a Big Share of US Taxes”

It’s the opposite. Corporations used to pay a more significant share of the national budget. In 1952, corporations paid 32.1 percent of federal income. By 2013, corporate taxation paid 9.9 percent of federal income.

See For Yourself: Check out the IRS historical data.

4. “We Need Tax Cuts to Stimulate the Economy”

Actually, we need public investment to stimulate the economy. The rich and large corporations used to pay more — and we used that money to do great things. Between the 1950s and 1970s, we built an interstate highway system and a first-class infrastructure. This stimulated our economy and created millions of good jobs. We sent millions of people to college debt-free and provided first-time homebuyer loans at low interest rates that built a (white) middle class after World War II. When people complain there is no money for these things, we just have to look at our own history and priorities.

See for yourself: “Corporate Tax rates and economic growth” by the Economic Policy Institute.

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