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Debunking Romney's attack on Americans who don't pay income taxes

Most people who 'pay no income tax' are working or have worked in the past, including seniors living on Social Security and Medicare benefits they paid for during their working lives.

September 19, 2012|Michael Hiltzik

By now, most Americans who take their civic responsibilities seriously have no doubt seen, or at least heard about, Mitt Romney's peculiar approach to broad-based voter outreach.

We're referring, of course, to his videotaped fundraising speech in Florida, in which he characterizes 47% of the American public as people who are "dependent on the government," who "pay no income tax" and who can't be convinced to "take personal responsibility and care for their lives."

Voters can decide for themselves whether Romney's words, taken at face value, bespeak a hopelessly crabbed approach to government's role in our lives or a principled stand for private enterprise and economic freedom.

But they should be concerned about the fundamental inaccuracy of Romney's claims and the erroneous conclusions he draws from them. For those point to the important questions of how he can make policy in a fact-free context, and how he can even know his own mind if he doesn't know what he's talking about.

So let's examine Romney's numbers and their significance.

The key number he cited is that 47% of Americans "pay no income tax." The statistic is true as far as it goes, but it doesn't come close to reaching the finish line. In fact, its shock value derives from the legerdemain of focusing solely on the federal income tax. This misleads Romney and his audience into thinking that the group in question is mostly people on a lifelong dole.

The truth is that the vast majority are people who are working or who have worked in the past. Their ranks include millions of Americans who are now retired, living on Social Security and Medicare benefits they paid for throughout their working lives. Many others are those who were booted into culverts by the economic crisis and are today struggling to get back on the road.

The 47% statistic comes from the Tax Policy Center, a project of the Urban Institute and Brookings Institution, which crunched IRS data to get it. TPC's actual finding is that 46.4% of "tax units" — that's IRS filers and non-filers combined — will have zero or negative U.S. income tax liability for 2011. (Romney would have been better advised to say 47% aren't paying income taxes now, rather than that 47% "don't pay taxes," as if that's a permanent condition.)

The worst flaw of this figure is that it ignores the burden of other federal taxes shouldered by many in the zero-income-tax group.

Principally, these are payroll taxes, which are levied this year on the first $110,100 of wage income for Social Security and all wage income for Medicare. Indeed, four-fifths of all taxpayers pay more in payroll taxes than federal income taxes as a percentage of income. The crossover point is about $100,000 in wage income. (By definition, the statistic counts the employer's share of payroll taxes as a burden on the worker.)

What this means is that a large share of all households paying no income tax are working households with substantial payroll tax bills. They're the antithesis of people who can't be convinced to "take personal responsibility" for their lives.

Another point overlooked in Romney's presentation is that many people who owe no income tax — as many as 15 million households or individuals — are victims of the economic crash. They fall into that category because they've lost their jobs or their income has fallen below taxable levels.

Moreover, their ranks are shrinking. In 2008 and 2009 they numbered about 80 million and accounted for about 51% of all "tax units," by TPC's reckoning. The spike resulted partially from the 2009 Making Work Pay tax credit and the exclusion of some unemployment benefits from income tax, both of which programs were designed to alleviate the impact of the economic downturn. Significantly, in 2007, before the crash, the people owing no tax numbered 61.6 million and accounted for less than 40% of all tax filers.

So who's left? Most Americans who owe neither income tax nor payroll tax, according to the nonprofit Center on Budget and Policy Priorities, are seniors, the disabled, or students (who are likely to join the ranks of taxpayers soon). They're not freeloading wards of the government — they've either paid for their benefits or are preparing for productive careers.

And by the way, at least a couple of thousand tax filers owe no income tax despite earning more than $200,000 in income, for reasons that include especially low rates on capital gains and dividend income and other tax benefits. Who knows — some may even have been in the audience at Romney's ill-starred fundraiser in Boca Raton.

One especially slick oversight by Romney and others who argue that people who pay no federal income tax have "no skin in the game" is that almost everyone incurs state and local taxes, and these are often regressive, hitting the poor more than the wealthy.

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