The Incredible Shrinking Income Tax Base
June 13, 2005
The first lesson of public finance is that the best taxes have broad bases and low rates. But since 1980 the base of the federal income tax—the largest single source of U.S. federal revenues—has been shrinking dramatically.
Why does this matter? Because in a democratic society, we expect people to choose the appropriate level of government spending and pay the full costs of those decisions. A shrinking number of taxpayers bearing the entire tax burden that funds programs for all Americans is a potentially troubling development.
America has become divided between a growing class of people who pay no income taxes and a shrinking class of people who are bearing the lion’s share of the burden… Overall, nearly 58 million taxable households are outside of the income tax system…
These findings raise serious questions about the future of the U.S. income tax system. Are any future tax cuts, or even tax reforms, possible when the lion’s share of the tax burden is increasingly borne by a shrinking pool of taxpayers?