Here's a fresh quote from the latest non-Romney front-runner in the GOP presidential race. "This dividing of America [between] 99-1," Rick Santorum said this morning in New Hampshire, "It's anybody that makes money and pays taxes and everybody who doesn't. That's the 99-1."
Santorum (like Michele Bachmann before him) is picking a fight with the millions of Americans who make money and don't pay federal income taxes. For the last few years, this group has accounted for about half of the country. The statistic inspired a website, "We Are the 53 Percent," which called out the 47% (or more) of households who owed no federal income tax in 2010 and again in 2011, because tax credits and deductions wiped out their liability.
Since 2000, the poorest 40% of households have averaged a federal income tax rate below zero. The graph below shows federal income taxes since 1979, from the lowest quintile (on the bottom) to the top 1% (at the top). The big picture is that we have a progressive tax system where federal income tax rates have fallen slightly for every class of taxpayers for the last three decades:
FEDERAL INCOME TAX RATES
But federal income tax isn't the only tax out there. In fact, FIT accounts for only 40 percent of total government revenue. Another 40ish percent comes from payroll taxes, which all working families pay up to about $107,000. The rest comes from corporate income taxes and excise taxes on things like gas. When you add all of those taxes together, you get the overall tax burden that economists call the "effective tax rate." Here is the graph of effective federal taxes for the same groups as above (it's a similar story of gradually falling rates for every group, with some jumpiness at the top):
TOTAL EFFECTIVE FEDERAL TAX RATES
Three big points, here. First, the fact that all the lines in the second graph are above zero suggest that the vast majority of households that don't pay federal income taxes do pay federal taxes. (The few that don't might still owe local and state taxes.) Second, the reason most poor families don't pay federal income taxes is that Republicans and Democrats keep cutting their taxes. Third, just about everybody has shared in the tax cut parade of the last 30 years. We haven't shared equally, but we've all gotten a break.
According to Santorum's quote, the most important class division in America is between income tax payers and non-income tax payers. This is a weird fight to pick for the Republican party, and particularly for Santorum, whose tax scheme would probably increase the number of households who owe no federal income tax.*
More broadly, it's surreal for Republicans to complain about taxes being too low on the poor while they also propose tax cuts for the wealthiest Americans. Neither Santorum nor any other candidate has actually said, "I want to raise taxes on the poor to pay for tax cuts for the rich," in so many words. But there is no other way to interpret the dual claims that not enough people pay income taxes and also tax rates should be lower. If you want higher federal income taxes on the poor and lower tax revenue overall, you are asking for the poor to subsidize a tax cut for the rich. The math doesn't work out any other way.
If only Santorum were the only candidate harping on this perceived injustice. Michele Bachmann made it a talking point after she surged in the polls. Rick Perry, Newt Gingrich, and Herman Cain proposed tax plans that would let the rich keep as much as $500,000 more of their income while raising taxes on the middle class or leaving their rates where they are. Any income tax cut is going to benefit the rich more, since they have more income. But these plans are supply-side economics ad absurdum.
There is an easy, conservative argument to make about taxes -- and even about the 47 percent. Our code is a block of swiss cheese, with $1 in holes (tax expenditures) for every $2 in cheese (revenue). We can lower rates and raise revenue -- for my conservative friends, I will say: "moderately!" -- by exchanging lower tax rates for lower tax giveaways. Instead of this, some Republicans, having spent three decades demanding lower taxes every single election, are suddenly professing utter shock and disgust that these cuts have helped the poor avoid income taxes entirely. Having lamented that the poor don't pay enough taxes, they propose that the rich pay too much.
Debating tax policy is often a proxy for debating spending policy. It's not just that conservatives value lower taxes because they promote growth. It's also that they don't value government spending, because they consider it anti-growth. On the contrary, it's not just that liberals value a progressive tax system, but also that you need highly progressive tax system to raise money to pay for their programs.
So, the weirdest part about Republicans' fixation on poor people not giving Washington more of their money is that the GOP doesn't want Washington to have more money! Poor people paying nothing dovetails nicely with an overall strategy of starving government of revenue. This isn't about public policy, really. It's just some rotten apples in the GOP trying to make middle-class families indignant that somebody else is getting preferential treatment.
*It would lower marginal rates on earned and investment income, keep the biggest deductions, and triple the child exemption. Rates would go down, carve-outs for big families would go up. In fact, if Rick Santorum's raison d'etre were to be the candidate for zeroing out the federal income tax for as many people as possible, reducing rates and adding exceptions is exactly how he would start!
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