Attacks on a Tax: An Alternative to the Earned Income Tax Credit to Remedy the Unfairness in the Payroll Tax System – Note by Dan Seltzer

From Volume 77, Number 1 (November 2003)
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The United States raises revenue through a variety of taxes that are fragmented or “disaggregated” into multiple components. Although most Americans think of taxes primarily in terms of the income tax, its lesser known cousin, the payroll tax, produces nearly identical revenues while falling disproportionately on the poor and middle-class. Disaggregating the tax system into several component taxes thus conceals the true aggregate tax burden on taxpayers. This misleading effect is exaggerated because the media and politicians focus on the income tax while ignoring the equally significant payroll tax.

In recent years, taxes have played a central role in most major political campaigns. President George W. Bush centered his campaign on tax issues, and passage of his 2001 tax relief package, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), was one of the first major accomplishments of his administration. Yet, despite this pronounced emphasis on reducing taxes, the media and politicians from both parties appear oblivious to the payroll tax, even though it represents the single largest tax for two-thirds of all Americans. Indeed, even as President Bush made tax cuts for the working poor a priority for his administration, these cuts generally affected only income taxes. His 2001 budget included extensive discussion on the income tax, but the sole mention of the payroll tax appeared in a footnote.


 

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