TGIF: Our Anti-Rich Tax System

More progressive than ever

I suspect that, considering how most commentators talk about the matter, many people think the U.S. tax system favors the rich, the public’s favorite scapegoat.

But according to Adam N. Michel, the Cato Institute’s director of tax policy studies, “We actually have one of the most progressive income taxes in the developed world.”

Michel said this during a conversation with Chris Edwards, the Cato’s Kilts Family Chair in Fiscal Studies, during their April 14 podcast conversation, "Who Actually Pays Federal Taxes?" Edwards added, "For 2025, 44 percent of American households will pay no federal income taxes.” It’s more anti-rich “than ever before.”

Michel and Santiago Forster, a Cato research associate in tax policy studies, elaborated in a blog post, “Tax Day: Five Charts on Who Pays, How Much.” (Check it out for the links that I’ve omitted.) This is stunning information.

They begin on a somber note: “The federal government confiscated $5.23 trillion of Americans’ money in fiscal year 2025. That’s a lot of money, and government data show that most of it is paid by the highest-income Americans. It is also not nearly enough to cover the $7 trillion Congress spent last year.”

We’re facing $2 trillion annual deficits in the coming years, so I’d say we’ve got a problem. But let’s move on.

What about progressivity? “At the federal level, the top 10 percent of income earners pay more than 60 percent of all taxes and 72 percent of income taxes, shares that have been increasing over time.” (Emphasis added.) And yet we hear “progressives” in and outside the government demand that the top 10 or 20 percent pay even more. How much more? What would satisfy those loud, greedy progressives? (Psst: the wealthiest have rights too.)

At the other end, Michel and Forster wrote, “[t]he lowest-income 20 percent of earners, measured by adjusted family cash income, face average tax rates that are either negative or close to zero.” (Emphasis added.)

Negative? “A negative tax rate means the taxpayer is a net beneficiary of the tax system, likely receiving refundable tax credits, such as the earned income tax credit (EITC), child tax credit (CTC), and Obamacare tax credits.”

The average tax rate on upper-tier earners is as high as 33.4 percent. “[A]s a share of adjusted gross income (AGI), the top half of income earners paid 97.1 percent of federal income taxes.”

That leaves less than 3 percent for the rest.

In the podcast, Edwards debunked a popular myth about the payroll (Social Security and Medicare) tax, which on paper is regressive: “We hear folks on the political left often complaining that low-income folks pay a high burden of payroll taxes. That is true, but because of refundable tax credits on the income-tax side, those mainly effectively wipe out the payroll-tax burden for low-income folks as well.” (Emphasis added.) He noted that the “bottom quintile, or the bottom 20 percent of Americans, only paid 1 percent of their income in taxes. That includes income and payroll and everything.”

Michel and Forster went on to point out that, in the past, when tax rates were cut, the wealthiest paid an even bigger share of the government’s tax take than before the cut. “Since 2001, average income tax rates have fallen for all five income groups. During this same time, the share of income taxes paid by the top five percent increased from 52.2 percent to 61 percent, while the share paid by all other taxpayers declined. According to the National Taxpayers Union, the top one percent’s share of federal income taxes has more than doubled since the 1980s, reaching 40.4 percent in tax year 2022.”

People apparently respond to incentives and disincentives. Who knew?

Finally, in the podcast, Edwards said that since the 1950s, no matter what tax rates were, the federal government’s annual tax haul hovered at about 18 percent of GDP; the personal income tax consistently netted about 8 percent. Isn’t it interesting that no matter where the government sets the rates, the revenue share of our total wealth gobbled up by the state changes so little. As I say, incentives and disincentives matter.

We live in a world of scarcity and, therefore, opportunity costs. The money the government grabs from the best producers is money that will be unavailable for making consumers better off.

TGIF—The Goal Is Freedom—appears on Fridays.