We don’t really know how much income tax Mitt Romney actually paid over the years because he hasn’t released many tax returns. We know that Harry Reid thinks he didn’t pay any. But what we do know is that he pays a pretty low tax rate of around 12 or 13 percent. In a recently released videotape of remarks made at a fundraiser this spring, Romeny said
There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax.”
Neither Romney or his campaign deny his saying this. Romney only wishes he had put it better.
A lot of the chatter has been about Obama supporters being called dependent victims, but what about the no tases part? The Tax Policy Center of the Urban Institute and Brookings Instituion has an 11 page document explaining why 47% of us pay little or no income tax. There are very interesting charts that explain a great deal about our tax policy. And, last summer, Roberton Williams posted on the Tax Policy Center’s blog in response to controversey about there report.
The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TPC paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.
The conclusion: Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children (see graph). Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.
Those provisions matter most for households with income under $50,000, who make up nearly 90 percent of those made nontaxable by tax expenditures. Higher-income households pay no tax because of other provisions. Itemized deductions and credits for children and education are a bigger factor for households with income between $50,000 and $100,000. The relatively few nontaxable households with income over $100,000 benefit most from above-the-line and itemized deductions and reduced tax rates on capital gains and dividends.
So our tax code is structured so those with less income pay less and those with the most income can take advantage of various ways of investing and reporting income to also pay less tax.
David Brooks writing in today’s New York Times called Romney “Thurston Howell” Romney after the millionaire guy in Gilligan’s Island. After citing the Romney quote, Brooks comments
This comment suggests a few things. First, it suggests that he really doesn’t know much about the country he inhabits. Who are these freeloaders? Is it the Iraq war veteran who goes to the V.A.? Is it the student getting a loan to go to college? Is it the retiree on Social Security or Medicare?
It suggests that Romney doesn’t know much about the culture of America. Yes, the entitlement state has expanded, but America remains one of the hardest-working nations on earth. Americans work longer hours than just about anyone else. Americans believe in work more than almost any other people. Ninety-two percent say that hard work is the key to success, according to a 2009 Pew Research Survey.
It says that Romney doesn’t know much about the political culture. Americans haven’t become childlike worshipers of big government. On the contrary, trust in government has declined. The number of people who think government spending promotes social mobility has fallen.
The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees. As Bill Galston of the Brookings Institution has noted, the people who have benefited from the entitlements explosion are middle-class workers, more so than the dependent poor.
I don’t often agree with Brooks, but I do agree with 80% – at least- of what he wrote today.
Of course, the voters have a long history of voting against self interest so as an Obama supporter I have to be cautious about the impact of Romney’s statement. Still, it provides insight into how the man thinks. I know Romney is trying to pass this off as a discussio of campaign strategy, but that strategy disses almost half of us who Romeny calls victims.
Another way to look at this red-state-blue-state phenomenon is through the lens of government spending. In his speech, Romney lumped people who don’t pay federal income tax in with people who depend on government benefits, but they are not always one and the same. As we stated above, most households not paying income tax are low-income or elderly citizens. These two groups do benefit from government spending (hello Medicare and food stamps) but they aren’t the only ones. In 2007, the bottom fifth of households by wealth only used 36% of government benefits. The rest mostly went to middle-class families. In fact, states where the federal government spends more on entitlement programs, like unemployment and subsidized school lunches, than they collect in taxes are actually more likely to lean Republican. The IRS is taxing people living in these states at the same rate as the rest of the country, but the government is doling out more benefits.