Tuesday, August 30, 2011
Taxes The real tax deadbeats
Posted by Max Brantley on Tue, Aug 30, 2011 at 6:36 AM
It shouldn't be necessary if people paid better attention, but Ernest Dumas has written some useful background this week for the growing Republican complaint that about half the people in the U.S. don't pay taxes — or "income taxes" if they are being precise. Michele Bachmann has even advocated reaching out and burning those slackers who aren't paying.
As Dumas notes, this "problem" could be corrected quickly: Impose an income tax on the disabled and the low-income elderly subsisting on Social Security. That would get just about everybody into the income tax-paying fold. And the bonus for Republicans would be that those deadbeat slackers would be paying at a rate higher than the super wealthy that control an ever-growing percentage of the country's wealth. Which, naturally, is how it should be. To whom much is given, much more should be given.
Sen. Mark Pryor has lately hastened to try to explain his recent use of the "half of America are deadbeats" Republican trope. He didn't say it exactly as Bachmann says it, his mouthpiece argues. But to even make vague allusion to the number that don't pay income taxes without a word of mention of payroll taxes and all the other taxes that comparatively overburden the poor and middle class is to join a mean and punishing political game.
Read Dumas' column this week:
By Ernest Dumas
Republicans—well, everyone else, too—ought to be alarmed about the course of the Republican presidential race, where the goofiest whim quickly becomes party orthodoxy.
So it was that when U. S. Rep. Michele Bachmann said the country should raise taxes on the poor, the elderly and the disabled, most of the other candidates leaped at the idea. Bachmann had signed a pledge never to vote for higher taxes, but collecting more income taxes from the poor apparently wouldn’t count against her.
This all started two years ago when the Tax Policy Center, a joint research project of the Brookings Institution and the Urban Institute, revealed that as a result of President Obama’s big stimulus program in 2009 about 47 percent of “taxing units” would owe no federal income taxes that year or in 2010. About $245 billion of the stimulus was tax cuts, an effort to create demand by putting spending money into people’s pockets. All but the very rich got refundable tax credits of up to $800 a couple, the earned income tax credit was expanded, and middle-class families received tax credits for college tuition. About 38 percent of households already had no income-tax liability because they were old or too poor, and the new credits would raise the untaxed share to 47 percent.
Fox News commentators have bandied the figure about regularly—rounding it off usually to “half the country”—and House Republican Leader Eric Cantor began to employ it in the debt-ceiling battle as an antidote to Obama’s insistence that the deficit be reduced partly by restoring the pre-Bush tax rates on people earning more than $250,000. Wealthier people already are carrying the tax burden, the Republicans said.
But Bachmann got specific about what should be done. Everyone in America, no matter how desperate their circumstances, should send something to the IRS to support the government that takes care of them, she said. It was a patriotic duty. That apparently includes the disabled and elderly. Nearly half of the 47 percent who owed no income taxes—22 percent to be exact—were seniors and the permanently disabled whose Social Security benefits are not taxed by the federal government. Congress could repeal the Social Security exemption for low-income retirees and reduce the untaxed share from 47 percent to 25 percent.
The rest are people who are unemployed or whose earnings are so puny that they owe no tax once they claim the individual exemptions and standard or itemized deductions that people with higher incomes claim.
Gov. Mitt Romney agreed that it was too bad that nearly half the population escaped taxes and left it to the rest to carry the burden. Even the rational and sometimes thoughtful Jon Huntsman agreed with Bachman that all those people should not be allowed to escape taxes. Rick Santorum said that when people got away without paying any taxes, “there’s no end to the amount of government that people want.” Gov. Rick Perry thought it was deplorable to have so many tax scofflaws. His solution—Herman Cain’s, too—was to scrap the income tax and impose a huge national sales tax on everything that people buy, which would finally put a solid tax obligation on all those freeloaders.
The tax freeloaders have taken the place of the welfare class, which was the Republican bogeyman until President Clinton’s welfare reform ended permanent entitlements.
But there is a giant fallacy in their argument, which most Americans must recognize. The 47 percent who had no federal income-tax liability are
not tax scofflaws and freeloaders. A sizable percentage of them pay a larger share of their income in taxes than the richest Americans do. The income tax accounts for only a little more than half of federal revenues. Social insurance taxes—employment taxes that are recorded for old-age and survivors insurance, Medicare hospitalization and disability insurance—and excise taxes on gasoline, cigarettes and a variety of other products and services account for more than 40 percent of all the government revenues. Those taxes land more heavily on the poorest half of the population, at least those who are not on Social Security, than on the better-off half.
While the non-elderly poor and moderate-income families with children, who make up the 25 percent, owe no income tax, they effectively pay a tax rate of 15.3 percent of all their income in payroll taxes. That includes the employer payroll share, but the economic impact is that the employer share of FICA taxes is an employee benefit that otherwise would be direct income if the government did not require the contribution on the worker’s behalf. Put excise taxes on top of that. People of low and moderate incomes also pay the lion’s share of state and local taxes, which are mainly sales, excise and property taxes. Most payroll taxes—all but the Medicare tax—are levied on only the first $106,800 of income so the effective tax rate gets smaller the higher a person’s earnings. The taxes are not collected on unearned income such as a rich investor’s interest, dividends and capital gains, but the average worker pays the taxes on every dime of his income. That is why Warren Buffett said his secretary paid a larger share of her income to support the government than he did.
When the politicians tell you how unfair it is that the richest 1, 2 or 5 percent pay such a large share of federal income taxes, consider these figures: If you divide the country into fifths, from the poorest fifth to the richest fifth, the share of the nation’s personal wealth breaks down this way:
The poorest fifth of Americans own one-tenth of one percent of the wealth, the next poorest fifth have two-tenths of one percent, the middle fifth own 3 percent, the next-to-richest fifth own 13 percent and the richest fifth own 83 percent. The average annual family income of the poorest fifth is $18,000, and of the richest fifth $200,000.
What Bachmann, Perry, Cantor and the rest should be lamenting is not the amount of taxes that the poorest 47 percent of Americans pay but the pitiful share of the nation’s great wealth that they own. That share has been sinking for 30 years, dramatically the past decade.
Now there is an issue for a presidential candidate.
Speaking of Income Tax, tax Exemptions
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State embarks on tax study; reality will soon intervene
March 15, 2012Talk Business reports on the expanding agenda of Rep. Davy Carter's plan to hold legislative hearings on every aspect of the Arkansas tax code, beginning with exemptions. /more/
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Exploding the tax-cut myth
March 13, 2012Ernest Dumas writes this week about the most cherished of Republican core beliefs — if you cut taxes, a mighty stream of prosperity will pour down on the rich and the unrich alike. /more/
- More »
Comments (16)
Showing 1-16 of 16
Played for fools and used as tools. Why do the TPartiers hate their grandparents and grandchildren?
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Tax wealth, not people. This "half don't pay taxes" line is the significant perversion for the very purpose of government teabaggers and the right seem to ignore. But then they don't want government to do anymore than protect and shelter corporations, not people.
Beware the dumber'n dogshit voting bloc.
The problem with this analysis is thinking of OASDI (SS & Med) as a "tax". It's really more like an insurance premium or a payment into an annuity - the benefits of which will be derived later in life.
I'm generally a good democrat on most economic and fiscal issues, but i believe that everyone should have some "skin in the game" when in comes to income taxes. Maybe like a small mandatory minimum tax liability-perhaps $5 for a single/head of household filer and $10 for a joint/married filing separately. Those who aren't required to file (mostly the elderly on just SS or disability) could have this minute amount withheld from their checks.
So much of what the right says is true - we are in dire straits fiscally, and everyone is going to have to chip in, etc. But their solutions are weighted too heavily against the poor and the job performers. I'd like to see some compromise that imposes a higher tax burden on the wealthy (especially the "carried interest" racket) while requiring every income tax filer to pay at least some nominal amount.
Ultimately what is needed is stability and predictability. It doesn't make much difference economically if the top marginal rate is 35% or 39%, but when investors and "job creators" (sorry, had to go there) don't know what's going to come down the pipe next, they do get skittish. That's partly why corporations have trillions in cash on the sidelines.
Oh, I see, they want more Americans to pay taxes so the government can do less with our increased contribution. We live in an Age of Fools. How did we end up with these myopic 'leaders'?
Wonder how Bachmann feels about GE doing their patriotic duty and paying their taxes? Corporations are people too.
"The problem with this analysis is thinking of OASDI (SS & Med) as a "tax"."
They are taxes. Paying them buys no guarantee of future benefits. Future payments are subject to the whims of Congress. If you are under the age of 50, it would be wise to assume that you will never see a Social Security check.
It is very nice that the full article includes the employer's share of payroll taxes as well.
When 15% of the people control 85% of the wealth, what do you expect other than that the 15% will also be trying to have their taxes paid for them by the poor as well?
dave23, not paying attention? Read my lips: they already pay taxes.
"It doesn't make much difference economically if the top marginal rate is 35% or 39%, but when investors and "job creators" (sorry, had to go there) don't know what's going to come down the pipe next, they do get skittish."
That makes so much sense. The rich need to know exactly what the top tax rate will be for the next 50 years or else - what? They'll move to Somalia? On the other hand, it doesn't matter much to the middle class and the poor whether Social Security and Medicare will be abolished tomorrow morning. See, only millionaires need stability and predictability. They are more sensitive and need more careful treatment than the rest of us. Better not speak loudly when a millionaire is present or you might scare them into donating more money to Bachmann or Perry.
As an aside, the Bush tax cuts were always supposed to be "predictable": they were set to expire by 2010. For some reason, the rich and their political handymen chose lower tax rates over "stability and predictability". Now why do you think would that be?
Thanks for the excellent article Ernest Dumas.
Add this into your perception of the problem.
http://tinyurl.com/CongressTrollsWantRaise…
Now we know that when Mark Pryor isn't hanging around C Street, he's home watching Fox News. The best thing that could happen to Arkansas and the US would be for Bill Halter or Vic Snyder to take him out in 2012.
Rich folks are as smart about money as thousand-pound men are smart about food.
Followers of rich folks who weigh less than 800 pounds are less smart.
"If you are under the age of 50, it would be wise to assume that you will never see a Social Security check." Posted by Gylippus
Spoken like a true Anarchist.
"Paying them buys no guarantee of future benefits. Future payments are subject to the whims of Congress. If you are under the age of 50, it would be wise to assume that you will never see a Social Security check."
I have news for you: there is nothing in the universe that can "guarantee" you future benefits. There is no investment that can guarantee you anything for the future. Whatever you invest in, stocks, treasury bonds, real estate, gold, may become worthless by the time you retire. And this isn't just a remote hypothetical. It historically has happened regularly every one or two generations. Even gold: you can't eat the stuff. Should there be a food shortage, you 'll be lucky to barter your gold for potatoes at a 1:1 exchange rate.
After the 2007 crisis wiped out tens of trillions in accumulated wealth, one would think that propertarians had learned something. Apparently they haven't.
Great editorial in today's NYT:
*The New Resentment of the Poor *
http://www.nytimes.com/2011/08/31/opinion/…
"In a decade of frenzied tax-cutting for the rich, the Republican Party just happened to lower tax rates for the poor, as well. Now several of the party’s most prominent presidential candidates and lawmakers want to correct that oversight and raise taxes on the poor and the working class, while protecting the rich, of course. These Republican leaders, who think nothing of widening tax loopholes for corporations and multimillion-dollar estates, are offended by the idea that people making less than $40,000 might benefit from the progressive tax code. They are infuriated by the earned income tax credit (the pride of Ronald Reagan), which has become the biggest and most effective antipoverty program by giving working families thousands of dollars a year in tax refunds. They scoff at continuing President Obama’s payroll tax cut, which is tilted toward low- and middle-income workers and expires in December.
Until fairly recently, Republicans, at least, have been fairly consistent in their position that tax cuts should benefit everyone. Though the Bush tax cuts were primarily for the rich, they did lower rates for almost all taxpayers, providing a veneer of egalitarianism. Then the recession pushed down incomes severely, many below the minimum income tax level, and the stimulus act lowered that level further with new tax cuts. The number of families not paying income tax has risen from about 30 percent before the recession to about half, and, suddenly, Republicans have a new tool to stoke class resentment.
Representative Michele Bachmann noted recently that 47 percent of Americans do not pay federal income tax; all of them, she said, should pay something because they benefit from parks, roads and national security. (Interesting that she acknowledged government has a purpose.) Gov. Rick Perry, in the announcement of his candidacy, said he was dismayed at the “injustice” that nearly half of Americans do not pay income tax. Jon Huntsman Jr., up to now the most reasonable in the Republican presidential field, said not enough Americans pay tax.
Representative Eric Cantor, the House majority leader, and several senators have made similar arguments, variations of the idea expressed earlier by Senator Dan Coats of Indiana that “everyone needs to have some skin in the game.” This is factually wrong, economically wrong and morally wrong. First, the facts: a vast majority of Americans have skin in the tax game. Even if they earn too little to qualify for the income tax, they pay payroll taxes (which Republicans want to raise), gasoline excise taxes and state and local taxes. Only 14 percent of households pay neither income nor payroll taxes, according to the Tax Policy Center at the Brookings Institution. The poorest fifth paid an average of 16.3 percent of income in taxes in 2010. (...)
At a time when high-income households are paying their lowest share of federal taxes in decades, when corporations frequently avoid paying any tax, it is clear who should bear a larger burden and who should not."
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