Are 47% of americans “takers?”

Discussion in 'Clean Debate Zone' started by oldfart, Sep 21, 2012.

  1. oldfart
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    oldfart Older than dirt

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    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.
     
    Last edited by a moderator: Sep 24, 2012
  2. jwoodie
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    jwoodie Gold Member Supporting Member

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    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%
    _________________________________________________________________

    You are comparing relative "portions of the tax Law" (i.e., number of pages devoted to each section)? The number of government employees, contractors, financial aid recipients and their dependents easily equals 40% of the population. The fact that some small percentage move in and out of these categories from year to year is immaterial.
     
    Last edited by a moderator: Sep 24, 2012
  3. candycorn
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    candycorn Alis volat propriis

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    Alleging that the 47% contribute nothing (i.e. moochers) is as intellectually dishonest as a politician has been lately.

    I believe that the Castro gentleman had it right; Romney doesn't know how good he has it.
     
  4. flacaltenn
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    flacaltenn USMB Mod Staff Member Gold Supporting Member

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    OldFart --- Good post and Welcome..

    Coupla points..

    1) The 47% is also a close approximation to population who have no contribution to the General Fund. Because the number of filed returns showing no liability is close to 76Million and studies have shown that expands to represent just about 45 or 46% of the population.

    2) I really don't care HOW you whittled 47% down to 20%. If the argument is about "fair shares" then by definition --- half the folks pay O into General Fund and that's not a fair share. Granted, there should ALWAYS be exempt filers.. The percentage can be discussed. But when folks in the 2nd and 3rd higher quintiles of income start to fall into the 47% -- there can be no argument about "fairness" without including them in the discussion..

    3) Romney's major mistake here was stepping into the big pile of poo that is Class Warfare. Instead of simply using this factoid to bolster a wider focus on "fairness". He made unconscienable stereotypes about WHO the 47% were and how he had written them off. Just as Obama has written off the Bitter Clingers.

    When the Soc Sec crisis accelerates from a $40Bill deficit lately into a $100Bill deficit soon, the 57% is gonna be stuck with the bill. Because payments are gonna come NOT from the phoney Trust Fund -- but from these INCOME TAX PAYERS.. THAT -- represents a huge redistribution of money from the 57% to the 47%.. To solve this and other time bombs, we can't ask 1% of the population to solve these problems. We need more hands on deck..

    P.S. I find taxing of ANY S.S. benefits irritating and cynical.. It's like taxing Lottery winners. The FEDs TAKE IN after tax monies and then tax the proceeds of the distribution. I'd like EVERYONE to have smaller tax assessments. But it's getting harder to give tax breaks when 47% are paying nothing in Income Tax to begin with..
     
    Last edited: Sep 22, 2012
  5. oldfart
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    oldfart Older than dirt

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    You are mistaken, my post has nothing to do with the length of any section of the IRC. Every tax benefit comes under an appropriate section of the IRC; Sec 86 for example deals with the taxable portion of Social Security and RRA Tier I benefits. Brookings used SOI data to determine how many filers who ended up owing no income tax did so because of what Code section.

    If you want to argue methodology, look up the report.

    Which again has nothing to do with my post. Government employees, like the Specrtre gunship crews training a quarter mile away from me right now on the gun range get paid for their work.
    Some categories such as those over 65 are pretty stable. Others, like people who recieved EITC turn over pretty quickly. So what? My point is that the 47% figure is not an indication of dependency on the government.
     
  6. flacaltenn
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    flacaltenn USMB Mod Staff Member Gold Supporting Member

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    Uh Oldfart --- you may not have noticed (being "old" and all) but the reason we're lookin down the barrel of a Soc Sec/Medicare crisis is BECAUSE "categories such as over 65" are NOT stable at all.. About 10,000 a day joining those ranks..

    I'm completely with ya about the 47% not being the same group "dependent on the govt".. But it's REALLY REALLY interesting to me that when you do the math and start adding up all those people you started to mention -- the military, city/state workers, Fed workers, contractors who's sole customer is govt, the unemployed on benefits, the retired govt workers on pensions, defense contractors etc ---- I believe you'd get to a really similiar number. Probably tip the scale at about 47% wouldn't it?

    Remember ole Ross Perot's chart? When that number gets above 50% ----- we can just forget about trying to restrain the size and scope of Govt. Instead of the govt working for us --- we'll all be working for the govt..
     
  7. oldfart
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    oldfart Older than dirt

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    I am perfectly happy debating the fairness of the tax system, but I think it is a little distorted to consider only income taxes. Most government services are actually paid for by sales and property taxes, not income taxes.

    I'm not sure where the point leads to. A majority of the population does not pay excise taxes on tobacco or explosives, but that does not make those taxes inherently unfair. Discussions of fairness of revenue policy should include all sources of government revenue: taxes, fines, and fees included.

    I agree with you there!

    I see we can have a really good conversation about the Trust Funds in the future. For now, let me just point out that the projections don't have the benefit levels going to zero (when the fund balance is zero, the system could pay out about 70% of projected benefit levels from current receipts and the the passing of the demographic bulge would eventually return the system to full benefits).

    When I got my Treasury card unemployment benefits and Social Security were completely untaxed. It was Reagan's idea to tax them to fund rate cuts on the upper end. Hell, I remember when there was a sick pay exclusion and when all interest was deductible. Given the choice, I think most taxpayers would rather go back to the tax codes of 50's (we did pretty well under Ike) or 1980.

    We have something like that in the tax code. It's called the Alternative Minimum Tax and if Congress doesn't fix things by January, it reverts to the 2000 rules and about 40 million middle class taxpayers will see their tax bill go up. It is a genuine "flat tax" and everyone hates it. When the CBO issued a report about five years ago the AMT was virtually the only part of the tax code they found that served no discernable purpose. The IRS National Taxpayer Advocate's #1 recommendation to Congress in 2008 was to abolish it.

    Let's face it, just about everyone pays sales tax and property taxes (directly or as part of rent). This is what pays for police and fire protection, schoolteachers, state parks, and state and local court systems and prisons and jails. Why the fixation on everyone paying some income tax? Would everyone be happier with a 1% tax on all income with an offsetting sales tax reduction?
     
  8. oldfart
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    oldfart Older than dirt

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    OK, if you added together all federal, state, and local employees, all employees of firms who have contracts with any level of government, all retirees, all disabled, etc. you have a lot of people. About 35% of all spending is done by some level of government. So what is the point? That we need to fire more policemen?

    We can afford as a society whatever goods and services we are willing to pay for. No economy can consume more than it produces in the long run. We can debate what services we really want and we should vigorously root out waste and corruption and find better ways to produce goods and services, but that has nothing to do with demonizing government.

    Want to save $50 billion a year? Get rid of Medicare Advantage. It costs 10% more that traditional Medicare and doesn't delivery any better service. Don't like all those working poor getting earned income credit? Go back to the old welfare system instead. Reality is that lots of things in this country are broken and need to be fixed or replaced. The hard part is that most of the simple easy solutions don't work. It takes a lot of hard work to get the details right and improve anything. The biggest barrier to doing that is our political climate where scoring points is deemed a substitute for solving problems.

    I don't see an economic problem in this country that is not soluble. But solving them will require honest intellectual effort. So if we want to discuss fixing public education, or the Social Security trust funds, or health care financing, or our broken justice system, let's give it a shot.
     
  9. flacaltenn
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    flacaltenn USMB Mod Staff Member Gold Supporting Member

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    Obviously you don't place much value on the 26 or so Federal Agencies that LIVE off of Income Tax. That's why there's a fixation.. And the printing presses and tons of BONDS that are being floated to finance 40% of the Fed Budget.. Until you understand why there's a "fixation" on this problem ---- I can't believe you can seriously prescribe a solution...

    Hell --- if you don't value the benefit those Agencies deliver --- we should start slashing pretty aggressively and let you live off LOCAL SERVICES funded by LOCAL taxes...
     
  10. Katzndogz
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    Katzndogz Diamond Member

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    As early as 1998 obama wanted to build a majority coalition of welfare recipients. He's made it to only 47%.


    The full recording reveals that Obama saw welfare recipients and the working poor in Chicago as a “majority coalition” who could be leveraged politically. (RELATED: Pat Buchanan: “Fabian socialist” Obama “is a drug dealer of welfare”)

    “What I think will re-engage people in politics is if we’re doing significant, serious policy work around what I will label the ‘working poor,’” he said, “although my definition of the working poor is not simply folks making minimum wage, but it’s also families of four who are making $30,000 a year.”

    “They are struggling. And to the extent that we are doing research figuring out what kinds of government action would successfully make their lives better, we are then putting together a potential majority coalition to move those agendas forward.”



    Read more: Full audio of 1998 Obama 'redistribution' speech reveals liberal positions on gun control, health care, welfare reform | The Daily Caller
     

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