“Skin in the Tax Game”: Invisible Taxpapers? Invisible Citizens?

This essay was the basis for the Rev. Dr. Martin Luther King, Jr. Memorial Lecture at the Villanova University School of Law on January 27, 2014. It examines economic justice from a tax perspective.

“Skin in the game” – some thing that the interested party has at risk – has become a part of everyday American political discourse. Personal financial risk – some personal stake – is demanded of all “players.” The implications are clear: no skin, no play. The requirement for “skin in the game” in the context of ongoing fiscal debate along with the “concern” that in 2011 almost fifty percent of Americans paid no federal income tax is the latest version of the ongoing “cut-taxes/reduce governmental size” wrangling. It is also another play on the high political salience of the federal income tax as an institution.

Focus solely on the federal income tax, however, inappropriately skews the debate. As an editorial in the New York Times indicated, for many of these non-(federal) taxpayers, the absence of liability resulted from deliberate tax policy implemented during the Reagan administration. Of equal importance and as also noted in that editorial, the federal income tax is not the only source of governmental tax liability. Exemption of liability for federal income tax purposes does not carry with it similar exemption from other levies either on the federal level or on the state and local levels. As noted in the editorial, “[e]ven if [Americans] earn too little to qualify for the income tax, they pay payroll taxes, gasoline excise taxes and state and local taxes.”

Because the American system of governance is federalist, government on each level must identify sources of revenue adequate to defray services provided and – with the exception of the federal government – must do so within the confines of a balanced budget. In this essay, I examine the federal levies to which these taxpayers remain subject in combination with state and local taxes thus establishing that less affluent Americans have “skin in the tax game.” I also comment on the inherently regressive nature of these taxes as well as the effect of income and wealth disparity on likely comparative tax burdens. I conclude by identifying several ways in which sole focus on federal tax burden inappropriately skews debate, potentially distorts policy, and limits opportunity for citizen input across all levels of government.