The recent leaked remarks of Gov Romney at a fundraiser where he made a somewhat garbled claim that 47% of the American public were “dependent on government” and unreachable to the attractive features of his programs because they paid no federal income tax raises some questions of fact and perspective. First to be fair to Mr. Romney, I believe that he is sincere in what he believes and that much of the blowback is the result of him misspeaking what he believes. So I am going to spot him a big one and assume that he does NOT think that 47% of the American public is “takers” in the parlance of the Randian universe, even if that is what he said. This is like Ronald Reagan’s comment about welfare Cadillac’s; he presented it as an anecdote without claiming that any specific percentage of those on public assistance were irresponsible moochers or crooks. In particular, Romney bemoaned the fact that nearly half the country doesn’t pay federal income taxes: “These are people who pay no income tax. Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn’t connect. … [M]y job is not to worry about those people. I’ll never convince them that they should take personal responsibility for their lives.” The confusion started with the 47% figure itself. Actually in the Statistics of Income Bulletin the figure given is 46.4% and is the percentage of 2011 federal income tax returns filed that show no net income tax liability. So the first caveat is that this is a percentage of filed Form 1040 series returns, not a general population figure. This introduces two distortions; first not all 2011 returns are filed (extensions are due October 15) and apparently Mr. Romney himself is in this category. Secondly, it says nothing about those who do not file tax returns, most of whom are not required to file tax returns. Almost all of the data about tax return filing and information comes from the Statistics of Income Division of the Internal Revenue Service and can be accessed in excruciating detail through Tax Statistics. Since individual tax return information is protected from disclosure by law, all information is presented as aggregates, but some of the series, like the top 400 individual returns characteristics, can be pretty interesting. The data is so available and accessible I have trouble seeing a good reason not to fact check this data when quoted. The biggest problem is that there is so much data published it can be hard to find exactly what you are looking for. Perhaps the biggest limitation of this data and how Romney used it is that it is for one year. Typically filers go through a life cycle, showing low income when students, higher income while working, and lower income again when retired. And most small businesses have good years and bad years; I’ve got a few zero years in my Social Security earnings record myself. Using Census information, the Hamilton Project show that until age 60 or so, about 80% of all tax filers pay income and/or payroll taxes, and that from ages 25 to 60 about 70% of filers pay some income tax. The point is that most return filers pay income tax during their working years, even if they do not pay income tax in the current year. I think that it is obvious that drawing conclusions about Americans work ethic based on a single year of tax data is a misuse of the data; most Americans during their normal working years pay income tax. [Sorry, I am having trouble posting the graphics of the charts; if I can't fix it I will at least post the url] So who are the remaining 20%, are they the same people each year, and what tax advantages cause them to have no income tax liability? Obviously not all of them are poor; in fact about 4,000 millionaires pay no income tax each year. One way to look at this is to consider which portions of the tax law are used to reduce income tax liability to zero. Using SOI data the Brookings Institution provides the following: ---Tax breaks for the elderly (mainly partial exclusion of Social Security benefits) 44.0% ---Credits for working poor (mainly child tax credit and earned income tax credit 30.4% ---Exclusions for tax-free benefits (like health insurance) 6.0% ---Education credits 5.6% ---Exclusion for tax-exempt interest 5.1% ---Itemized deductions 5.0% ---Other tax credits 2.5% ---Favored treatment of capital gains & dividends 1.3% The only groups on this list that I think could conceivably support Mr. Romney’s comment are the credits for working poor. But these programs owe their existence to the Republican Party and have been for over 20 years been pointed to with pride by Republicans who argue they are a vital part of moving poor people from welfare to jobs. The original EITC was invented by the famous liberal economist Milton Friedman when he was chief economic advisor to the Barry Goldwater campaign. Back then it was called the “Negative Income Tax” and was the darling of conservatives and libertarians because it was far cheaper to administer than welfare programs such as public housing and food stamps and was less intrusive into people’s private lives. The first earned income credit was proposed and signed by President Nixon. But have these programs created a permanent class of low-paid workers dependent on these credits for a major portion of their income year after year? Apparently not. Most EITC recipients only get the credit for two consecutive years or less. Many of them soon move up the income ladder and start paying taxes back into the system. One paper found that, over their lifetime, these EITC recipients pay more in taxes than they receive in benefits. Consecutive years of receiving EITC ---one year 42% ---two years 19% ---three/four years 20% ---five or more years 20% [Shamelessly stolen from “Americans who pay no income taxes, EITC edition” TheWashingtonPost website, October 24, 2011 by Brad Plummer. } http://www.washingtonpost.com/blogs...-eitc-edition/2011/10/24/gIQAfbzfCM_blog.html Conservative revisionists might want to rewrite history now, but the plain truth is that these tax credits were conceived by conservative Republicans, enacted by conservative Republicans, and claimed as great achievements by conservative Republicans, from Goldwater through Nixon and Reagan forward at least until 2010. If any conservatives want to demonize these programs and claim that the 5.6% of tax filers who owe no federal income tax for more than two years because of the refundable child tax credit and earned income tax credit constitute and underclass of “takers”, they are pointing the finger at their own intellectual heritage. And the size of this group is astonishingly small compared to the 5.6% who owe no federal income tax due to education credits or the 5.1% who avoid federal income tax because their income consists mostly of tax-free bond interest (and they generally do this every year!). So where are we left? Every government program has some waste, fraud, corruption, and inefficiencies; that’s why each agency has an inspector general. Some agencies do a better job of improving their operations than others. Every program should strive to improve. There are some people who game the system, including the tax system. Some of these people are poor and some of them are extremely wealthy and everywhere in between. But tax statistics do not support the notion that there is a huge underclass of Americans who are permanently dependent on government support.