4
The 47% who don't pay federal income tax include middle class, poor, retirees
Mitt Romney wasn't wrong when he said almost half of Americans don't pay federal income taxes. Some of those people are retired, some are poor. Another big reason why some don't pay? Tax cuts.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
Republican presidential nominee Mitt Romney is making waves over comments he made at a fundraiser. Specifically, when he 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..."
Romney was referring to the nearly half of Americans who don't pay federal income taxes.
In his reporting for the New York Times, Washington bureau chief David Leonhardt has spent a lot of time looking at that 47% figure.
"For a lot of people [income tax] isn't the main tax they pay, it's not the main federal tax they pay," says Leonhardt.
The 47 percent are a relatively diverse bunch -- including retirees who no longer pay income taxes, the poor, and people who are not making enough money right now to bump up into a different tax bracket.
"There are two main reasons for the people who aren't making enough money," Leonhardt says. "One is that the last few presidents have all cut taxes... and the second is that we've had a really bad 10 or 12 years economically."
Many of the policies that have reduced the federal income tax rolls are favored by Republicans, namely tax cuts for middle income earners. The GOP has two competing strains on federal income taxes. Some want to cut as many taxes for as many people as possible. Others like to highlight the low participation rate, and want to encourage everyone to contribute a little bit. That's not always an easy political mix.
"You see these tensions within Mitt Romney's own presidential campaign. On one hand you have these remarks he said about the 47 percent. On the other hand, you have several promises from him not to raise taxes on people who don't make that much money," says Leonhardt.
And there's another, much larger tension at play. Most Americans want lots of government services like subsized health care, but also want low taxes. That's the crux of what drives up our deficit.
"Whether you really liked Mitt Romney's 47 percent answer, or you really don't like it," Leonhardt says, "Either way, we have a government that doesn't add up... and that can't continue forever."
Am I right in thinking that anyone living on investments, not needing a job, escapes the payroll tax entirely, which is a fairly substantial tax (higher than the federal income tax? than most state taxes?)? Is it also worth noting in this context that any sales tax is a regressive tax, in that it constitutes a higher percentage of income for those with lower incomes?
Sigh. I imagine we'll keep talking about this all week, at least -- but I am already getting a little tired of the omissions so many analysts are making when they discuss just who benefits from federal largesse, etc.
A good example is this lede story from Marketplace tonight. Ky Ryssdal interviewed David Leonhardt from the NYT, who starts off with a litany of all the taxes everybody pays besides the income tax -- and first on his list was the estate tax! A most UNrepresentative example to start with, since after 20 years of demonization as the "death tax" by the GOP, hardly anyone anywhere pays this anymore (I think on average the estate must be greater than $10 million to begin incurring taxes).
But the deeper problem with Leonhardt's analysis was its incompleteness. Yes, it's very true that federal spending on entitlements is 700 times what it was after WWII. But Leonhardt makes a couple of key . . . errors. First, he asserts that entitlement spending, coupled with low taxes, is the cause of our current deficits. But those of us with a bit of memory left recall that George W. Bush threw away the surplus he inherited from Bill Clinton on 1) tax BREAKS for everyone, esp. the wealthy investor class who chiefly pay just capital gains taxes and 2) on TWO costly -- and unpaid for -- wars in the Middle East. (The third deficit spending binge under Bush was on an equally unpaid-for new Medicare benefit for prescription drugs.)
The second glaring omission that Leonhardt made (and that I've heard from analysts all day) is neglecting to mention the federal largess enjoyed by the wealthy and by corporations. These special preferences (capital gains breaks, investment deductions, depreciation, etc. etc. etc.) wind up creating far more benefits for the rich than the rest of us enjoy. And the list of corporations and businesses who benefit from federal subsidies and a host of other tax breaks is also very long, indeed.
This is an incredibly important discussion this nation needs to have: What "entitlements" do we pay for? Who benefits from them? Which ones do the American people feel are worthwhile or justified? And which ones are we willing to give up in order to reduce our debt? On the flip side of that: Is our current tax structure fair? If we need more revenue to reduce our debt, who should we call upon to pay more?
So it's equally important that the media and the analysts they turn to for enlightenment and pertinent details get the story correct -- and don't leave any parts out!
On 1 Jan the "death tax" kicks in at a much lower level. (currently at $5 million) It will be going down to $1 million and the rate will be 55%. The tax will be determined not by what you earn, but by the value the IRS decides your total estate is worth. This can affect a lot of people who are not "rich" by any means.
Here are two examples: Joe Soldier. Has SGLI of $400,000; a 401k with $140,000; a IRA worth $80,000; a home on a quarter acre worth $250,000; two cars worth a total of $15,000; a second life insurance for $100,000; personal property worth $50,000 (including his comic book collection and firearm collection); and a savings of $10,000. :$1,045,000. Tax due $24,000 now. You can delay it some with giving everything to the wife, but then her IRA, 401k, etc get added in also.
Or we can look at Matt, a small dairy farmer: 150 acre's of land taxed at a value of $650,000; House, barn, storage barn, silo, out buildings valued at $168,000; Four tractors $125,000; nine tow behind farm tools (bailer, chopper, rake, haybine, skid-steer, etc) $250,000; 75 milking cows @ $2,500 each $187,500; 40 heifers, calfs, family meat steer, $36,000; life insurance $200,000; personal property at $35,000; three cars/trucks $22,000; total $1,673,500...on an income of $43,000 a year. Matt's family would owe $370,150 right away. The only way to get that kind of cash would be to sell property at a loss.
But, hey, keep thinking it only will effect the "super rich". And don't even try to answer the question "What right do you have to claim the property of someone else just because they died"
