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Five Tax Myths Debunked

Tax Day has come and gone. Maybe you have a big bill from Uncle Sam or maybe you got a fat refund. Either way, it’s easy to get lost in the noise from pundits and politicians who thrive on the tax code’s complexity.

This is made even harder by the right-wing groups who are spending millions on television ads in support of the Trump tax cuts in the lead-up to the mid-term elections this November.

To draw a clear line between fact and fiction, here’s a set of commonly heard myths about our tax code.

Myth: The United States is a high tax country.

Reality: Among wealthy countries, the United States ranks 31 out of 35 for taxes as a proportion of GDP in 2016. Only Chile, Ireland, Mexico, and Turkey collected a smaller percentage.

The average rate among wealthy countries was just over 34 percent of GDP, while the U.S. is just 26 percent, meaning that Americans could see their taxes go up 30 percent and still be below the average. This myth was repeated over and over to justify the Trump tax cuts, but it was false all along.

Myth: Corporations pay high taxes in the United States.

Reality: Corporate tax revenue made up just 2.2 percent of GDP in 2016, significantly less than the average wealthy country. The Trump tax cuts will likely make our corporate tax revenue the lowest among all developed countries.

Many profitable corporations already pay negative federal income taxes, meaning they get more in subsidies than they pay in taxes. In 2017, there were 15 such companies — including Amazon, Molson Coors, and Duke Energy.

Myth: Undocumented workers don’t pay taxes.

Reality: Undocumented immigrants pay an enormous amount of taxes — in fact, $11.7 billion in state and local taxes alone. That figure includes $7 billion in sales and excise taxes, $3.6 billion in property taxes, and $1.1 billion in income taxes.

All told, undocumented workers pay about 8 percent of their income in state and local taxes. Compare that to the wealthiest 1 percent, who pay just 5.4 percent. Those much-maligned immigrants pay a greater share of their income to support local communities than the wealthiest individuals in the country.

Myth: Cutting taxes for the rich trickles down and spurs economic growth.

Reality: Liar, liar, pants on fire. This stubborn myth, made famous by Arthur Laffer in the 1980s, gets repeatedly almost daily. The nonpartisan Congressional Research Servicelooked at every tax cut over the past 65 years and found zero correlation between tax cuts and economic growth.

Instead, they found that cutting taxes for the rich makes the rich richer. Go figure. The Institute for Taxation and Economic Policy looked at state tax cuts and came to the same conclusion.

Modern examples include the major tax cuts in Kansas pushed forward by Republican governor Sam Brownback. Not only did those fail to generate growth or pay for themselves, they cratered the state budget and created a fiscal crisis.

Myth: The Trump tax cuts help the middle class.

Reality: The Koch brothers stand to see their pay go up by $27 million per week. Meanwhile, a secretary in Pennsylvania made famous by soon-to-be-former House Speaker Paul Ryan saw her take home pay go up by $1.50.

And that’s pretty much part and parcel of what the Trump tax cuts do. The wealthiest 5 percent of taxpayers get about half the benefits while the bottom 95 percent splits the other half.

Don’t get it twisted: The tax code heavily benefits the wealthiest households and most profitable corporations. Unfortunately, the Trump tax cuts only further shift favor in their direction. The first step to changing this dynamic is understanding it.

More articles by:

Josh Hoxie directs the Project on Opportunity and Taxation at the Institute for Policy Studies (IPS-dc.org).

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