Border Cantos is a timely, new and free exhibit now on view at Crystal Bridges.
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.
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 1 percent of the wealth, the next poorest fifth have two-tenths of 1 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.
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