Who Actually Pays Federal Taxes?

In this episode of the Cato Podcast, Chris Edwards and Adam Michel discuss the realities of federal taxation in the United States as April 15th approaches. They reveal that despite widespread perceptions of tax fairness, the burden is heavily concentrated at the top: the top 10% of earners pay 60% of all federal taxes, while the bottom 20% pay virtually nothing—often receiving government checks through refundable tax credits like the EITC and child tax credit. The episode highlights how payroll taxes, though often overlooked, are a major source of revenue, especially for middle- and lower-income Americans. However, the combination of refundable credits and progressive income taxation effectively neutralizes the payroll tax burden for low earners. The conversation then turns to the growing complexity of the tax code, with over 200 loopholes today—up from 53 in 1970—largely due to recent Republican tax reforms under President Trump, which added new exclusions like tax-free tips and senior savings accounts. These changes, while politically popular, increase complexity and reduce revenue, undermining efforts to simplify the system. The hosts warn that without fiscal discipline, the U.S. risks following the European welfare state model, where high taxes on all income levels stifle economic growth. They advocate for a flat, consumption-based tax system with low rates and broad bases as a path to fairness, simplicity, and long-term prosperity. The episode ends on a cautiously hopeful note, noting that congressional staff are receptive to reform ideas, and a fiscal cliff in 2028 may create a new opening for meaningful change.