A Taxing Problem
in the U.S. Tax System
An interview with Robert
Multinational Monitor, May
Robert Mcintyre is director of Citizens
for Tax Justice, the leading research and advocacy group working
for tax fairness at the federal, state and local levels. Mcintyre
has written hundreds of articles on tax policy issues, in publications
like the Washington Post, the New York Times and academic journals.
Multinational Monitor: How much does the
average person in the United States pay in local, state and federal
Robert McIntyre: Federal taxes, including
everything, amount to about a sixth of a person's or couple's
income. State and local taxes add another 12 percent, for a total
of about 29 percent. In dollars, that averages a little over $10,000
MM: How progressive are the tax structures?
McIntyre: At the federal level, which
is progressive, poor people pay the least, about 8 percent of
their incomes. Rich people pay a little over a quarter of their
income in taxes. The middle people are in the middle.
On the state and local level, it is flipped:
Poor people pay the most, about 13 percent, the middle people
pay around 12 percent, and the richest people pay around 9 percent.
MM: Overall, what kind of impact do taxes
have on income and wealth distribution?
McIntyre: They even things out a little.
They are just a little progressive overall; it does not have a
Of course the tax system funds a lot of
government programs, some of which help the lower incomes, some
particularly help the higher incomes, like defense and all the
things the government does that help business.
MM: What proportion of the federal tax
take comes from corporations?
McIntyre: It is down these days to about
7 percent, about the lowest it has been in a generation.
MM: What is that down from?
McIntyre: It was 12 to 13 percent when
Clinton was still president. Then the combination of various Bush
tax cuts for corporations, adopted at the beginning of 2002, and
all the tax sheltering that the companies are doing these days
has pushed it down to about 7 percent.
MM: What were the levels in the years
McIntyre: In the sixties, corporations
paid about 22 percent of all federal taxes. In the seventies,
that fell to 15 percent. It plummeted in Ronald Reagan's first
term, down to as low as 6 percent. It then made a comeback to
some degree, after Reagan reversed his policies, but now it is
back way down again.
MM: How were the benefits of the first
Bush tax cut allocated ?
McIntyre: Bush's first tax cut affected
the personal income tax. By the time it is fully phased in, just
over half of it will go to the best off 1 percent of the population.
MM: What would be the impact of the current
McIntyre: Bush's current tax cut plan
has many pieces. The part that they are serious about getting
enacted this year is the $726 billion part of their $1.6 trillion
in total proposed tax cuts. A little over a third of that part
would go to the richest 1 percent. Included in that $726 billion
is Bush's proposal to eliminate most taxes on corporate dividends.
About half of that would go to the richest people.
Of the $726 billion total, just under
half would go to the top 5 percent, 60 percent to the top tenth
and about three quarters to the top fifth.
MM: Do the bottom income groups get anything?
McIntyre: The bottom 60 percent get 8 percent of it.
MM: What is the current status of the
estate tax? McIntyre: It is being phased out. Between 2001 and
2009, the estate tax exemption is scheduled to increase and then
in 2010, the tax is slated to disappear, kaput!, kaboom! Technically,
it is supposed to be reinstated the following year. But nobody
really expects that.
MM: And how are those benefits distributed?
McIntyre: Well, you know, only 1.5 percent
of all estates pays any estate tax, and the benefits of repeal
will go overwhelmingly to the richest of those. So this tax cut
is almost all for the very, very wealthy.
MM: Why has there not been warmer support
from the corporate sector for the Bush administration's dividend
McIntyre: Well, the executives warmed
up to it once they checked their own portfolios, plus they have
been under a lot of pressure from the administration to support
Initially, they were cool to it. In part,
that was because they thought if they are going to give them a
subsidy, they'd just as soon it went to the companies, rather
than the shareholders. In part, it was because some of them had
some fears that the shareholders would be mad at them if a company's
dividends turned out to be taxable because the company was avoiding
paying sufficient corporate income tax to qualify for tax-exempt
dividends. Overall, most of them seemed to think it would not
do much for their companies and thus, from their point of view,
was a waste of money.
MM: In broad outlines, if you could scrap
the entire existing tax system, both the federal code and the
state and local taxes, and put something else in place, what would
be the guiding principles of the replacement system? McIntyre:
What we would like to see is a progressive system that taxes people
based on their ability to pay. The one tax that does that pretty
well is the income tax. You need both a personal and corporate
income tax, by the way, or the income tax falls apart. So I'd
like to see a system that taxes people on what they really make,
not on some figment of their accountant's imagination, and does
so at progressive rates.
MM: How high should the top rate be?
McIntyre: Well, if you are going to treat
capital gains the same as other income, and that is an important
thing to do, you probably cannot get much higher than 35 or 40
percent before the pressure for capital gains breaks just gets
But you could pick up something extra
in terms of progressivity by having a wealth tax or an estate
MM: And what would be the tax burden on
lower income groups?
McIntyre: Right now the federal income
tax is negative on lower income people with children, rightfully
so I think, given that they don't have very much money. That's
due in large part to the Earned Income Tax Credit-a refundable
tax credit for low-income working families. It is a commendable
program that sends a considerable amount of money to people that
really need help, although it could use some substantial tweaking.
I would probably keep the social security
payroll tax pretty much as it is, so even low-income people would
pay some federal taxes, but not much.
MM: Would you eliminate sales tax?
McIntyre: You could. If you eliminated
the state sales taxes, then of course you would have to raise
state income taxes a lot. That would be OK with me. Certainly,
the states that have very heavy reliance on sales taxes ought
to rethink it. Those are states that generally do not have income
taxes, and have very regressive tax systems.
MM: What is the proper role for property
McIntyre: The property tax is not that
bad of a tax as long as it's structured right. It would be nice
if more states would adopt homestead exemptions so that the homeowner
part of the tax becomes progressive, and there is some clean up
to do on some of the business property taxes. But the property
tax is not the world's worst tax. One advantage is that it encourages
people to support public education. That's because it's generally
a local tax, so it is the taxpayers' kids that the money goes