As the fight in Washington drags on over how to avert the so-called fiscal cliff, complicating efforts to compromise is the general impression held by Americans they are already overtaxed. It's simply not true, at least from a historical perspective. The total tax burden for most American households is less today than in 1980, and for those in the upper income brackets the tax burden is considerably less. The more the facts are explained and accepted, the easier it would be for the president and Congress to strike a deal.
No one likes paying taxes. But most Americans understand that taxes are an unavoidable obligation of citizenship. What angers people more than taxes is the impression that they are paying more than they used to and they are paying too much. This misconception has been perpetuated by the likes of Grover Norquist, to advance his bobble-headed antitax pledge and small-government agenda, and tea party Republicans who win elections on misleading claims that Americans are already overtaxed and the only way to rein in federal spending is through spending cuts alone.
Yet the reality is that in 2010, most Americans paid less in combined federal, state and local taxes than they would have 30 years ago, according to an analysis by the New York Times. The biggest beneficiaries were not the poorest Americans, who are derided by conservatives as "moochers" for paying no federal income taxes (they pay plenty in other federal and state taxes), but households earning more than $200,000.
The numbers are stark. On average, a household approximately in the top 1 percent, earning $350,000 in 2010, paid $24,000 less in total taxes than it would have in 1980 (using inflation-adjusted dollars), saving nearly 7 percent of its income from the tax man. A household making $52,000 in 2010 — about the median income — saved an average of $1,500, or 2.8 percent. The average for a household making $22,000, about the federal poverty line for a family of four in 2010, was a savings of 0.8 percent, or $200.
The big breaks for those at the top come as a result of lower federal tax rates for all income levels over the last 30 years. For households in the middle and lower end of the income scale, increases in state and local taxes have reduced the impact of lower federal taxes on their overall tax burden. These kinds of taxes, such as property taxes and sales taxes, tend to extract a higher portion of income from less well-off households, which has to some degree offset the drop in federal income taxes. In Florida and a handful of other states, the rise in state and local taxes since 1980 has wiped out the federal tax savings for most households, not just those with the lowest incomes.
The drop in tax receipts demonstrates why federal revenues are not covering the cost of running the country. Federal taxes have to rise, particularly for the wealthy, but nearly everyone is paying a lot less than in previous eras on a percentage basis, except those at the bottom of the income ladder. That's why real solutions to the fiscal cliff have to be based on facts, not on the public misconceptions fueled by partisan political fighting.