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Understanding 47% [W:330, 669]

JoeTheEconomist

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Before you tell people that 47% of the country does not pay taxes, please look at the data. The problem isn't the American people. The problem is the American government.

On August 29th, the Tax Policy Center updated its projections of the number of Americans who have no Federal income tax obligation. The original report from 2009 was the genesis for the implosion of Mitt Romney's presidential campaign. Few times have 16 words been so expensive; "There are 47 percent of the people who will vote for the president no matter what."

Romney was blaming Americans for over dependence upon the government, when even modest research would have told him that the problem is the government dependence on tax credits for buying votes. According to Roberton Williams of the Tax Policy Center, the cost of tax credits has risen to nearly $1 trillion annually. So the government gave away in 2009 almost as much as it collected ($1.1 trillion).

Romney's statement refers to people not paying taxes in 2009. In 2009, the government passed the The American Recovery and Reinvestment Act of 2009. In it, we find educational subsidies, home buyers subsidies, home improvers subsidizes, healthcare subsidizes, and car subsidizes. We paid people to work. We paid people not to work. We paid people to be retired. We paid people to be children. It is surprising that anyone paid taxes.

Some want to cloud the issue by introducing what are at best irrelevant issues. When the Tax Policy Center says that 47% of households pay no income tax, it refers to the income tax only. TPC explains that "Fully two-thirds of households that pay no federal income tax have workers that pay payroll taxes." It also introduces a range of other taxes collected by the Federal government to suggest that the 47% probably do pay some taxes.

In the payroll tax, the government collects revenue in exchange for the promise of future benefits. Getting money today in exchange for a promise to repay that money isn't a tax. It is a loan. The Social Security Administration argues Social Security's portion of payroll taxes are "contributions to the social insurance system that is Social Security." While payroll taxes are collected under the power to tax, it is very difficult to argue that collecting revenue today in exchange for future revenue is a tax.

The Earned Income Tax Credit (EITC) is the reason that lower-income Americans get such a high return from Social Security. This credit was "designed to offset the burden of the Social Security payroll tax for low-wage workers with children." (Source Bill Clinton Page 14) It has been expanded since its inception in the mid-1970s. Of people not paying any federal income tax, they get an While the EITC is an offset for the cost of Social Security, roughly half of the 2/3rds get a refund that exceeds their entire payroll tax bill.

The reason that roughly 45% of the country pays no income tax is the government is obsessed with using the tax code as a tool of social policy. These people aren't dependent, they are simply catching some of the money that the government is throwing around.


Related Reading :

The Tax Policy Center provides some insight on the 2009 data. It provides insight on the 2013 data.

The Tax Policy Center provides information on the longer-term projections : ("T13-0228 - Tax Units with Zero or Negative Income Tax Liability Under Current Law")
 

Goshin

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Good post.


The real, nitty-gritty question though, is why are 47% of Americans so poor that they have no Fed Income Tax obligation?


Answers: Outsourcing and cheap or illegal immigrant labor, to name two things. Wage increases not rising as fast as cost of living for another.
 

ecofarm

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Good post.


The real, nitty-gritty question though, is why are 47% of Americans so poor that they have no Fed Income Tax obligation?


Answers: Outsourcing and cheap or illegal immigrant labor, to name two things. Wage increases not rising as fast as cost of living for another.
I don't think those 47% are so poor. Sure, a PS3 instead of a PS4... an iPhone 3 instead of an iPhone 4... meh.
 

CalGun

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A couple of disagreements.

A tax break is not a government hand out. I would argue its evidence that tax rates are far too high. A tax break or tax credit as stated by the OP comes with a socially accepted diversion of income to something the govt deems acceptable. That could be an IRA deposit. It could be mortgage interest. It could be a college tuition payment, and a business expense necessary to producing the income in the first place. A tax credit / break means someone did something with the money OTHER than give it to the govt. it does not mean they put it in their pocket, and a tax avoided legally is not depriving our govt of its revenue it's keeping revenue in the hands of those who earned it.

47% and now 43% of our nation pays no federal income tax. Many still pay social security, Medicare and other govt taxes.

Someone attributed the 47% as being poor due to illegal immigration and outsourcing, we are told there are 12 million criminal aliens living here and certainly not all are employed so that is about 8% of the work force and not 43-47%. Outsourcing can actually save and produce jobs. Cheaper products thanks to it give people more to spend and create other jobs. A good story in the WSJ right now noted the problem is technology wiping out jobs and people not moving quickly enough into alternative careers, and an example was we lost 1.8 million manufacturing jobs but gained 1.7 million in health care with room for more. Computers are eliminating positions and needs for people ... Something the fast food industry will probably embrace shortly seeing how an iPad replaces a bad attitude $8 an hour order taker very soon.
 

opendebate

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Good post.

The real, nitty-gritty question though, is why are 47% of Americans so poor that they have no Fed Income Tax obligation?

Answers: Outsourcing and cheap or illegal immigrant labor, to name two things. Wage increases not rising as fast as cost of living for another.
Once in a while I see a response post like this one that I want to click the like button on about five times. . like like like like like
 

Dittohead not!

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The original report from 2009 was the genesis for the implosion of Mitt Romney's presidential campaign. Few times have 16 words been so expensive; "There are 47 percent of the people who will vote for the president no matter what."
Indeed.

Those 16 words were intended for an audience of wealthy people, but were recorded surreptitiously and soon heard by everyone. The statement is totally false, of course, as many of the 47% are also among the staunch partisans who wouldn't vote for a Democrat if he were opposed by Mephistopheles himself.

Politicians learn to say what their audience wants to hear. Unfortunately for the Romney campaign, what his audience wanted to hear was quite different from the message he wanted to convey to the rest of the country.

That said, what is the solution to nearly half of the nation not paying federal income taxes? Is it OK? Does it mean more high paying jobs should be available? Is it the fault of the low income workers? Should the threshold for paying taxes be lowered to include lower income workers? Is it even a problem that the government can address?
 

JoeTheEconomist

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A tax break is not a government hand out.
The distinction between a tax break and a hand out isn't clear to me. But what we call it is not important. Whatever we call them, they are the reason that 47% of the country pays no income tax. If you look at a millionaire who invests solely in munibonds, he has no income tax obligation. He will tell you that his tax is the lower rate of interest.

Payroll taxes are anything but taxes. A tax is something where money is taken, and you get back the social good whatever that is. With payroll taxes, you get a form of insurance which in the case of lower-wage workers is cheaper than they could get in the private market.
 

Paschendale

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Good post.

The real, nitty-gritty question though, is why are 47% of Americans so poor that they have no Fed Income Tax obligation?

Answers: Outsourcing and cheap or illegal immigrant labor, to name two things. Wage increases not rising as fast as cost of living for another.
Okay, but until wages go up and we stop letting companies ship jobs overseas, it's going to continue. The basic premise is simple. Businesses cannot simply be allowed to pursue more profit regardless of the cost to the country. That's why wages are low and why they're shipping jobs. Until we constrain businesses, things aren't going to improve. And yet, despite those obvious answers, no one is willing to do that. Any kind of measure to do so is decried as socialist and demonized by half the left wing and nearly all of the right wing. So apparently America wants it this way.
 

opendebate

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Before you tell people that 47% of the country does not pay taxes, please look at the data. The problem isn't the American people. The problem is the American government.

Some want to cloud the issue by introducing what are at best irrelevant issues
What exactly are you referring to? What do you consider irrelevant?

Am I missing something, your article only seems references tax credits for low income Americans. I am gleaning from this that you oppose such tax breaks. However, these tax breaks save many from resorting to social programs and provide some small amount of dispensable income which they can then cycle back into the economy. Which both seems to make good sense both economically and socially. Am I understanding you correctly?
 

JoeTheEconomist

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What exactly are you referring to? What do you consider irrelevant?

"And it’s nearly impossible to avoid all state and local taxes—the income, sales, and property taxes that support state and local governments."

What one pays state or local government is not relevant to the problem at hand.

"Anyone who buys gas, tobacco products, alcoholic beverages, or airplane tickets pays federal excise taxes"

Things like gas excise tax is a dedicated revenue stream for the DOT. Alcohol and Tabacco are more relevant taxes. And how much do we raise from these taxes as a whole. Not much.

Am I missing something, your article only seems references tax credits for low income Americans. I am gleaning from this that you oppose such tax breaks. However, these tax breaks save many from resorting to social programs and provide some small amount of dispensable income which they can then cycle back into the economy. Which both seems to make good sense both economically and socially. Am I understanding you correctly?

I am not bothered one way or other. The point is that social policy has become nearly as important to the IRS as collecting revenue. I don't believe that it is healthy that voters should pay nothing. It creates a voter that is detached from the consequences of the reality.

I think that this group extends well beyond the poor. Mitt Romney has an IRA valued in excess of 100 million. I saw the WSJ figured that his return would need to be in excess of 30% per YEAR to accomplish that amount. I am all for people saving, but I see no reason that I should subsidize Mitt Romney. On top of this his has created a family trust to avoid tens of millions of dollars in taxes. I am not a tax the rich supporter, but we have a tax code with massive loopholes.
 

CalGun

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If I put $3,000 into my retirement account I avoid $450 of income taxes. That is a tax break. That is not a government hand out. If I applied for food stamps, and I would qualify, that is a government hand out.
A millionaire investing in government bonds (muni or otherwise) is contributing to the governments low interest borrowing and thus providing society a benefit.

BTW I wouldn't give you $20 for a $100 muni bond since a bankrupt city doesn't have to pay them back and a lot of cities are going bankrupt.



The distinction between a tax break and a hand out isn't clear to me. But what we call it is not important. Whatever we call them, they are the reason that 47% of the country pays no income tax. If you look at a millionaire who invests solely in munibonds, he has no income tax obligation. He will tell you that his tax is the lower rate of interest.

Payroll taxes are anything but taxes. A tax is something where money is taken, and you get back the social good whatever that is. With payroll taxes, you get a form of insurance which in the case of lower-wage workers is cheaper than they could get in the private market.
 

JoeTheEconomist

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If I put $3,000 into my retirement account I avoid $450 of income taxes. That is a tax break. That is not a government hand out. If I applied for food stamps, and I would qualify, that is a government hand out.
A millionaire investing in government bonds (muni or otherwise) is contributing to the governments low interest borrowing and thus providing society a benefit.

BTW I wouldn't give you $20 for a $100 muni bond since a bankrupt city doesn't have to pay them back and a lot of cities are going bankrupt.
The $450 dollars of taxes isn't even a tax break. It is deferring tax. It is possible lose a lot of money on the 'avoiding $450 of income taxes'.

This position may seem to reverse what I said a comment ago. Romney is a slightly different case because there is something going on there other than an investment account. 30% annual returns.
 

opendebate

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"And it’s nearly impossible to avoid all state and local taxes—the income, sales, and property taxes that support state and local governments."
I don't believe that it is healthy that voters should pay nothing. It creates a voter that is detached from the consequences of the reality.
Don't all the other issues connected to them exercising their vote keep them tethered to the consequences that vote?


Mitt Romney has an IRA valued in excess of 100 million. I saw the WSJ figured that his return would need to be in excess of 30% per YEAR to accomplish that amount. I am all for people saving, but I see no reason that I should subsidize Mitt Romney. On top of this his has created a family trust to avoid tens of millions of dollars in taxes. I am not a tax the rich supporter, but we have a tax code with massive loopholes.
I agree with you here. I however, think that the super rich are given far more opportunities to dodge paying even an equal share of taxes. It makes a great deal more sense to me to have credits available for low income people for reasons I already stated.
 

Goshin

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Okay, but until wages go up and we stop letting companies ship jobs overseas, it's going to continue. The basic premise is simple. Businesses cannot simply be allowed to pursue more profit regardless of the cost to the country. That's why wages are low and why they're shipping jobs. Until we constrain businesses, things aren't going to improve. And yet, despite those obvious answers, no one is willing to do that. Any kind of measure to do so is decried as socialist and demonized by half the left wing and nearly all of the right wing. So apparently America wants it this way.

How long until these practices begin to impact the professional and lower-middle classes though? Eventually it has to... these practices are an open wound bleeding downhill as prosperity runs out of the country like blood. When enough people start feeling the bite and understanding why, maybe... or maybe it will be too little too late by then.
 

Goshin

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I don't think those 47% are so poor. Sure, a PS3 instead of a PS4... an iPhone 3 instead of an iPhone 4... meh.


Poor is relative. To an average Somali, an American on welfare is rich.


But this isn't Somalia, it is America. The standard of living is a lot higher.


It is not unreasonable for a blue collar AMERICAN working full time to expect to be able to afford a decent life by American standards. Not the same lifestyle enjoyed by a brain surgeon, a successful entrepreneur, or CEO, of course, but one that is decent by American standards. If you seriously think the diff between the lower half and the upper half is whether they can afford a PS3 or a PS4, you need to get out more.
 

ReformCollege

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Before you tell people that 47% of the country does not pay taxes, please look at the data. The problem isn't the American people. The problem is the American government.

On August 29th, the Tax Policy Center updated its projections of the number of Americans who have no Federal income tax obligation. The original report from 2009 was the genesis for the implosion of Mitt Romney's presidential campaign. Few times have 16 words been so expensive; "There are 47 percent of the people who will vote for the president no matter what."

Romney was blaming Americans for over dependence upon the government, when even modest research would have told him that the problem is the government dependence on tax credits for buying votes. According to Roberton Williams of the Tax Policy Center, the cost of tax credits has risen to nearly $1 trillion annually. So the government gave away in 2009 almost as much as it collected ($1.1 trillion).

Romney's statement refers to people not paying taxes in 2009. In 2009, the government passed the The American Recovery and Reinvestment Act of 2009. In it, we find educational subsidies, home buyers subsidies, home improvers subsidizes, healthcare subsidizes, and car subsidizes. We paid people to work. We paid people not to work. We paid people to be retired. We paid people to be children. It is surprising that anyone paid taxes.

Some want to cloud the issue by introducing what are at best irrelevant issues. When the Tax Policy Center says that 47% of households pay no income tax, it refers to the income tax only. TPC explains that "Fully two-thirds of households that pay no federal income tax have workers that pay payroll taxes." It also introduces a range of other taxes collected by the Federal government to suggest that the 47% probably do pay some taxes.

In the payroll tax, the government collects revenue in exchange for the promise of future benefits. Getting money today in exchange for a promise to repay that money isn't a tax. It is a loan. The Social Security Administration argues Social Security's portion of payroll taxes are "contributions to the social insurance system that is Social Security." While payroll taxes are collected under the power to tax, it is very difficult to argue that collecting revenue today in exchange for future revenue is a tax.

The Earned Income Tax Credit (EITC) is the reason that lower-income Americans get such a high return from Social Security. This credit was "designed to offset the burden of the Social Security payroll tax for low-wage workers with children." (Source Bill Clinton Page 14) It has been expanded since its inception in the mid-1970s. Of people not paying any federal income tax, they get an While the EITC is an offset for the cost of Social Security, roughly half of the 2/3rds get a refund that exceeds their entire payroll tax bill.

The reason that roughly 45% of the country pays no income tax is the government is obsessed with using the tax code as a tool of social policy. These people aren't dependent, they are simply catching some of the money that the government is throwing around.


Related Reading :

The Tax Policy Center provides some insight on the 2009 data. It provides insight on the 2013 data.

The Tax Policy Center provides information on the longer-term projections : ("T13-0228 - Tax Units with Zero or Negative Income Tax Liability Under Current Law")
Great post. Yeah, Mitt really blew his opportunity with the way he phrased this. The problem isn't that 47% pay no taxes, it's that tax credits are unevenly spread across 100% of people in order to buy votes. He had the opportunity to ask why one person making 50k might pay 15% in taxes but another pays zero. Instead of using the opportunity to call to action a need for total tax reform, he decided to paint an entire group of people with a single stroke. It was a blown opportunity indeed.
 

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Poor is relative. To an average Somali, an American on welfare is rich.


But this isn't Somalia, it is America. The standard of living is a lot higher.


It is not unreasonable for a blue collar AMERICAN working full time to expect to be able to afford a decent life by American standards. Not the same lifestyle enjoyed by a brain surgeon, a successful entrepreneur, or CEO, of course, but one that is decent by American standards. If you seriously think the diff between the lower half and the upper half is whether they can afford a PS3 or a PS4, you need to get out more.
I think much of that 47% has plenty and enjoys considerable luxury, even by American standards.
 

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I think much of that 47% has plenty and enjoys considerable luxury, even by American standards.

Yup, you need to get out more. :)
 

What if...?

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How long until these practices begin to impact the professional and lower-middle classes though? Eventually it has to... these practices are an open wound bleeding downhill as prosperity runs out of the country like blood. When enough people start feeling the bite and understanding why, maybe... or maybe it will be too little too late by then.
I made a claim once that "engineer" was an $8/hr job on global market.

Challenged for a cite, it turned out to be like $7.71/hr.

Sad victory.
 

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I made a claim once that "engineer" was an $8/hr job on global market.

Challenged for a cite, it turned out to be like $7.71/hr.

Sad victory.
That's good bank in some places, just not here.
 

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Yup, you need to get out more. :)
No, I think you do. I live in a very poor neighborhood, rent ~500/month for a studio, and most of the people here are SSD and SSI. Maybe 30% own cars.

People have cable, computers, game systems, etc... People go to movies, football games, bars... There's plenty of luxury in this poor neighborhood.
 

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Don't all the other issues connected to them exercising their vote keep them tethered to the consequences that vote?


I agree with you here. I however, think that the super rich are given far more opportunities to dodge paying even an equal share of taxes. It makes a great deal more sense to me to have credits available for low income people for reasons I already stated.
I do not buy into the discussion that people are kept from voting. I don't think that asking people to have a photo id is too much to ask, and I definitely do not believe that people should be able to register the day of the election. If registering to vote isn't important enough to you before hand, your vote isn't important to you either. The government has many venues to register. If you wait until the day of the election, I don't see the problem with saying come back and vote in two years.

As for the super rich, their tax rates are down marginally since the 1986 tax reform act. The effective tax rate of the poor has simply imploded downward. As the debt has risen it is the low-end of the economic spectrum that has enjoyed the tax cuts.
 

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I do not buy into the discussion that people are kept from voting. I don't think that asking people to have a photo id is too much to ask, and I definitely do not believe that people should be able to register the day of the election. If registering to vote isn't important enough to you before hand, your vote isn't important to you either. The government has many venues to register. If you wait until the day of the election, I don't see the problem with saying come back and vote in two years.

As for the super rich, their tax rates are down marginally since the 1986 tax reform act. The effective tax rate of the poor has simply imploded downward. As the debt has risen it is the low-end of the economic spectrum that has enjoyed the tax cuts.
That's not what I meant.
 
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