You might have heard, if you've been watching cable news at any point in the last 72 hours, that 47 percent of Americans will not owe income taxes this year. Conservatives argue that this is just one more way the economy is slipping into a social-egalitarian morass in which more Americans live off the productivity of the few elite who are actually busy putting the capital into capitalism. But if the 47% figure is a monster, it is also a monster that Republicans have helped to create.
To understand why that's true, it's important to understand why half of Americans aren't paying federal income taxes. Most of them receive generous tax credits -- the Earned Income Tax Credit (EITC), child-care credits, subsidies for college and savings -- worth more than their tax burden, according to the Tax Policy Center.
When Republicans rail against the 47% figure, they're railing against features like the EITC. What is the EITC? It's a refundable tax credit that rewards work and offsets the burden of payroll taxes for low-income payers by returning a fixed percent of income up to a maximum credit based on factors like number of children. But the EITC is a Republican creation. It was enacted in 1975 under President Ford (a Republican), and expanded numerous times over the last 35 years by Republicans. President Reagan (Republican) expanded it in 1984 and 1986. President Bush (Republican) expanded it against in 1990 and added supplemental credit for families with more than one child. President Clinton expanded it for childless claimants in 1993. President Bush (Republican) expanded it again in 2001.
Today this $50 billion program is one of the largest component of our welfare system. But rather than appear on the budget (or in the news) as a spending program, it appears as tax relief, and the headline we see is "How the Other Half Lives: No Federal Taxes!" Do you see what's happening here? Both moderate and conservative pols are reluctant to announce new spending programs for fear they will look like socialists. So they execute spending programs through the tax system. As a result, more and more Americans appear to be paying no federal taxes!
This is not to say that Republicans were wrong to expand tax credits for low- and middle-income families. On the contrary, wages have grown painfully slowly for many Americans since the 1970s while payroll taxes have crept higher. The EITC is an easy way to mitigate the burden of payroll taxes for low-income Americans while rewarding work. Rather, Republicans are in the strange position of having eroded the tax base with credits for decades, and now they're complaining that not enough Americans are paying taxes.
America's political/entertainment climate has scared politicians from announcing welfare programs as spending programs. So instead, many of them appear in the budget as tax relief. One inevitable result is that fewer Americans today appear to be paying taxes.
More on the 47% figure later today...