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In a letter written in 1789, Benjamin Franklin observed, In this world nothing can be said to be certain, except death and taxes. While the former is certain 100 percent of the time, the latter is not necessarily so. This is borne out in a recent study published by the Congressional Budget Office (CBO). CBO is a nonpartisan federal agency established to provide independent analyses of budgetary and economic issues. The December 2013 report, based on 2010 data from the IRS and the Census Bureau, is revealing. It found that the top 40 percent of American households paid 106.2 percent of the nation s net federal income taxes but accounted for only 72.3 percent of total income. The bottom 40 percent had 14.7 percent of income but paid negative net income taxes, accounting for -9.1 percent of taxes. This needs further explanation. CBO calculated before-tax income to include market income households earned as well as what they received from government, called government transfers. Market income consists of wages and salaries, business income, capital gains, dividends, retirement income for past service, and other sources.

Government transfers are cash payments and in-kind benefits. They include unemployment insurance, Social Security and Medicare, and means-tested programs such as Medicaid and food stamps.

Using this methodology, CBO concluded the top 40 percent had an average income of ,500 and greater. The bottom 40 percent had ,200 and less.

Transfers cause the income in all groups to increase. But the increase, both in dollars and percentage of income, is greatest for those with lower income.

To determine net income taxes paid, CBO analysts subtracted refundable tax credits from taxes paid. And when refundable tax credits such as the earned income tax credit and the child tax credit exceeded tax liabilities, households had negative income taxes. That is, they received more from the government than they paid in taxes.

Granted, the United States has a progressive system of taxation. But should the top 40 percent be expected to pay all the income taxes? The answer depends primarily on one s philosophy on the use of taxation to effect redistribution of income.

The CBO report, The Distribution of Household Income and Federal Taxes, 2010, can be accessed at www.cbo.gov._____Wayne Curtis, Ph.D., is a former superintendent of Alabama banks and Troy University business school dean. He is retired from the board of directors of First United Security Bank. Email him at wccurtis3@gmail.com.

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