Why Poor and Lower-Income People Should Be Tax-Cutting Conservatives
by FRANK HILL
December 18, 2012
Something about the inherent 'unfairness' and 'regressive' nature of the Powerball lottery got us to thinking:
'How much do poor and lower-and-middle income people pay in taxes anyway each year?'
We fully put lottery payments into the 'tax revenue' category since they go to support government functions such as public education at the state level. (read 'Lottery As Tax Revenue')
Here's a little ditty from Henry Fielding in 1732 about the folly of lotteries:
'A Lottery is a Taxation,
Upon all the Fools in Creation;
And Heav'n be prais'd,
It is easily rais'd,
Credulity's always in Fashion;
For, Folly's a Fund,
Will never lose Ground;
While Fools are so rife in the Nation'
Somehow the Powerball includes funds from all over the nation so in essence, that is some sort of 'national tax' when all is said and done, isn't it?
We all want better schools, right? Well, the lottery provides those funds in most states nowadays on top of other appropriated funds in the normal budgeting process.
So right off the bat, we can count lottery purchases as 'taxes paid' each year, mostly by lower and moderate-income folks who unfortunately don't realize that they have a far better chance of being struck by lightning than they do winning the big jackpot...ever.
Let's take a look at the taxes paid by someone making $11,170/year. That is right at the poverty level for a single person according to the Department of Human Services. We are deliberately ignoring any government benefits this person may be receiving or are eligible for right now so we can focus solely on this one question:
'How much of their income does this person pay in taxes each and every year?'
We know upfront that this laborer or menial clerical staffer is going to be socked with a 7.85% FICA payroll tax right off the top of their weekly or bi-weekly paycheck. There's $871 right there being deducted no questions asked.
We have seen estimates of poor people spending a range of 5-9% of their annual tax-home pay per year on various lotteries. There's another $558-$1005 per year in 'lottery taxes' right there.
We are up to $1876 of their $11,170 in annual income being gone already.
What about cigarette smoking? Many lower-income folks smoke, some as much as 2 packs per day. We used to work with many who smoked so much it was hard to believe they could get any work done.
Cigarette prices range all over the place from state to state but on average, a pack of cigarettes costs about $6 around the nation (They are over $11/pack in New York!) State and federal taxes can represent close to 40% of every pack or let's say over $2/pack nationwide. A pack/day habit amounts to 30 packs per month or about $60/month paid out in cigarette taxes alone. $720 annually in cigarette taxes.
Up to close to $2500 in taxes paid by this poverty-level worker so far.
How about gas taxes? This poor person probably has a dated truck to drive to and from work 60 miles every day due to this recession or 300 miles per week. The old truck gets 10 mpg...maybe. They fill up the tank every 3-4 days and use 120 gallons of gas per month.
State and local taxes on gasoline are about 31 cents/gallon. Federal gas taxes amount to 18.4 cents per gallon for a total of let's say, $0.50/gallon of gas.
This poor person is paying close to $60/month in federal, state and local gas taxes or another $720/year.
Close to $3300 in taxes...and counting.
What about sales taxes? They cover a wide range but generally sales taxes can amount to 8% of any items bought during the year, on food bought at restaurant or fast-food joints, (Big Macs, Whoppers) but generally not on food bought at grocery stores. Many lower-income people eat at McDonald's and Burger King frequently due to the perceived lower cost of the food, further complicating health problems with unhealthy food.
For argument's sake, let's assume that this person eats out a lot or $100/week or $400/month or $4800/year. There is maybe $240/year in taxes paid doing so.
We are already up to $3540 in taxes paid in a year by this one poor low-income person. We are sure we have missed some tax along the way so we are going to make it a round $4000/year this person at the poverty level of income is laying out in taxes every single year (since we are counting lottery purchases as 'taxes')
Almost 36% of their income paid out in taxes to every level of government imaginable.
That is their 'effective' tax rate, ladies and gentlemen. 36% paid out in taxes annually. By some of the poorest people in America.
To corroborate this line of reasoning, check out this article from the left-of-center Center on Budget and Policy Priorities. They conclude, with far more academic research than I have done here with my perhaps exaggerated example that the lowest quintile of American income-earners pay at least 16% of their income in some form of taxes. The second-lowest quintile pay 21% of the income in taxes. Before counting the purchase of lottery tickets which, in some cases, could reach another 9% of their take-home pay.
No wonder poor people need government assistance! Aside from having generally lower levels of education and coming from disadvantaged backgrounds, they also have the subtle, subversive power of the government at 3 different levels coming at them to pick their pockets even at meager levels of income!
Here's what we are aiming at today:
'Poor people would be far better off if they didn't have to pay ANY taxes in the first place so they could be able to take care of themselves and their families first with the incomes they make on their own.'
It would seem as though it goes against the best interests of the poor to keep voting for Democrats who promise to give them 'more' in the way of benefits and then raise taxes on them to pay for it.
Wouldn't it be far better to allow a poor person the opportunity to work hard and provide for him/herself and their families? One of the problems in America today Charles Murray points out in his excellent book 'Coming Apart: The State of White America' is that many lower-income white people have lost the sense of industriousness and achievement that goes with becoming self-sufficient and self-reliant.*
Maybe we should abolish all of these lotteries too which prey on the lower-and-middle income classes as well. They are inherently 'unfair' and 'regressive in nature'. Where's the outcry on that score from the Progressive Liberal side of the aisle?
* Charles Murray is highly recommended as a source for you if you are interested in the impact of culture, faith, community and government on America. His book 'Losing Ground' which came out in 1984 led directly to the welfare reform bill passed by the GOP Congress and signed into law by President Clinton in 1996
Contributing Editor Frank Hill ran for Congress at the age of 28 and served as chief of staff for former Congressman Alex McMillan (NC-9) and Senator Elizabeth Dole (NC). He was a budget associate on the House Budget Committee for 4 years and worked on the 1994 Commission on Entitlement and Tax Reform. He now lives in Charlotte, North Carolina where he does some consulting and lots of worrying about federal spending issues.