From the June 2018 Atlantic, The Birth of the New Aristocracy by Matthew Stewart:
Consider, for starters, the greatly exaggerated reports of our tax burdens. On guest panels this past holiday season, apologists for the latest round of upwardly aimed tax cuts offered versions of Mitt Romney’s claim that the 47 percent of Americans who pay no federal income tax in a typical year have “no skin in the game.” Baloney. Sure, the federal individual-income tax, which raised $1.6 trillion last year, remains progressive. But the $1.2 trillion raised by the payroll tax hits all workers—but not investors, such as Romney—and it hits those making lower incomes at a higher rate, thanks to a cap on the amount of income subject to the tax. Then there’s the $2.3 trillion raised by state and local governments, much of it collected through regressive sales and property taxes. The poorest quintile of Americans pays more than twice the rate of state taxes as the top 1 percent does, and about half again what the top 10 percent pays.
Our false protests about paying all the taxes, however, sound like songs of innocence compared with our mastery of the art of having the taxes returned to us. The income-tax system that so offended my grandfather has had the unintended effect of creating a highly discreet category of government expenditures. They’re called “tax breaks,” but it’s better to think of them as handouts that spare the government the inconvenience of collecting the money in the first place. In theory, tax expenditures can be used to support any number of worthy social purposes, and a few of them, such as the earned income-tax credit, do actually go to those with a lower income. But more commonly, because their value is usually a function of the amount of money individuals have in the first place, and those individuals’ marginal tax rates, the benefits flow uphill.
Let us count our blessings: Every year, the federal government doles out tax expenditures through deductions for retirement savings (worth $137 billion in 2013); employer-sponsored health plans ($250 billion); mortgage-interest payments ($70 billion); and, sweetest of all, income from watching the value of your home, stock portfolio, and private-equity partnerships grow ($161 billion). In total, federal tax expenditures exceeded $900 billion in 2013. That’s more than the cost of Medicare, more than the cost of Medicaid, more than the cost of all other federal safety-net programs put together. And—such is the beauty of the system—51 percent of those handouts went to the top quintile of earners, and 39 percent to the top decile.
The best thing about this program of reverse taxation, as far as the 9.9 percent are concerned, is that the bottom 90 percent haven’t got a clue. The working classes get riled up when they see someone at the grocery store flipping out their food stamps to buy a T-bone. They have no idea that a nice family on the other side of town is walking away with $100,000 for flipping their house.
The trick is to distinguish the statutory tax rate from the effective tax rate- the amount paid after deductions. The difference between the two is the ‘special interest spread’; the difference gained for special interests from lobbying and political influence.
The Trump tax cut put a dent in the spread by strictly limiting the deductibility of state income tax, local property taxes, and mortgage interest. I would like to see the spread approach zero. Every deduction and credit is an increase on the tax payers without influence.