Tax the rich?

After three months of debate, Congress still hasn't settled the standoff over the payroll tax cut, which would save the average Montana household about $800 by extending or expanding the 2 percent cut in Social Security withholdings that Congress passed last year.

"I would argue it's a pretty good tax to temporarily roll back," says Patrick Barkey, director of the University of Montana's Bureau of Business and Economic Research.

While economists like Barkey and elected representatives on both sides of the aisle voice support for a "payroll tax holiday," agreement ends there, even among Montana's congressional delegation.

Democrats are proposing that the wealthiest among us—those who earn more than $1 million annually—pick up the tab.

According to the Montana Department of Revenue, of 433,853 income tax returns filed in the state last year, 415 households—less than one tenth of 1 percent—earned more than $1 million.

Republicans say the wealthy already pay their fair share, and that federal workforce cuts, a continued freeze on federal employee pay and trimming entitlement programs are the best ways to fund the payroll tax cut extension.

Congressional Budget Office data from 2007 indicates that the richest 1 percent of households earned 19 percent of all income, yet paid 28 percent of the taxes. Those earning the least—on average $18,400—earned 4 percent of all income and paid 1 percent of all federal tax.

"If you look at the very big picture and you look at the proportion of taxes being paid already by people in the upper income brackets, it's considerable," Barkey says.

Still, even as the federal deficit topped $15 trillion last month, we're all paying less in taxes than we did 30 years ago. The richest 400 income-earning households paid 26 percent of all taxes paid in 1992, compared to 17 percent in 2007, according to the IRS. During the same period, income in those households increased by 700 percent.

Tara Veazey of the Montana Budget and Policy Center says the federal tax system has always been progressive. There's a reason for that. Not only can the wealthy afford to pay more, taxpayer-funded infrastructure benefit business leaders. "The highest income earners in our country have benefited disproportionately from our public investment," Veazey maintains.

The payroll tax holiday ends Dec. 31.

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