A Bit More on the Low-Income Tax Burden
My recent post noted that many low-income workers do not need additional tax credits to offset Social Security taxes because of the Earned Income Tax Credit. This afternoon, I was reminded of a related conversation I had with a former president of the National Tax Association (NTA).
The NTA person (I don’t want to name names) let me know that he was tired of “conservatives” saying that low-income people don’t pay taxes. In fact, he let me know, poor people pay social security taxes and sales taxes, both of which are highly regressive. Well, I’ve already posted on one problem with this logic (the EITC). Still there are others.
For one, it turns out that many people do not pay state and/or local sales taxes on food and “necessities,†the definition of which depends on where one lives. These data are very difficult to pin down because so many municipalities have so many different rules. However, there are several papers at the Tax Foundation that provide a good summary.
Beyond that, the claim that Social Security taxes are regressive is simply a farce. The goal of the Social Security program is to provide a safety net for retirement (call it a pension, if you must). More importantly, the system works by providing retirees with benefits based on what they put in.
In other words, if you work more, you pay more in, but you’re eligible for more when you retire.
On the flip side, if you work less, you pay less in, and end up with lower benefits at retirement…precisely because you didn’t work as much. The only way this can be considered a regressive tax is if you believe (a) Social Security is not a retirement program at all; and, (b) people who work more (and thus pay higher payroll taxes) should have their benefits reduced. I can think of a few words for part b.
NM