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Tilting at Windmills

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October 20, 2008
By: Hilzoy

There They Go Again ...

Cliff May at The Corner quotes Kimberley Strassel:

"To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes! How can our star enact such mathemagic? How can he "cut" zero? Abracadabra! It's called a "refundable tax credit." It involves the federal government taking money from those who do pay taxes, and writing checks to those who don't. Yes, yes, in the real world this is known as "welfare," but please try not to ruin the show."

Hmm. This is a tough one. How can you cut taxes for people who pay no income taxes? Magic? Welfare? Or maybe -- just maybe -- people who pay no income taxes pay some other kind of tax.

I know, I know: how could there be any sort of tax other than the (federal) income tax? I have heard that in distant lands there are strange, exotic taxes, like the "sales tax", the "property tax", "state and local income taxes", the "capital gains tax", "use taxes", "permit fees", other fees, the "severance tax", the "occupational privilege tax", the "estate tax", the "gift tax", the "federal excise tax", and even the fantastically named "generation skipping transfer tax". But surely we have no such outlandish customs here! We who live in a country that has only one sort of tax, the federal income tax, can only stare in wonder at those benighted countries where people actually pay taxes whenever they buy a shovel or realize capital gains.

Oh. Wait.

Oops!

I guess that means Cliff May doesn't have to worry about this either:

"OK, so we all know that taxation without representation is a form of tyranny. But as Kimberly Strassel and others have been pointing out, "40% of Americans today don't pay income taxes."

What if, not implausibly, in the next administration that number rises to 51% or more? At that point, the majority of Americans not paying taxes would elect leaders who decide how much the minority must fork over to the government — to be redistributed to the majority through government programs and services.

A majority of American would enjoy representation without taxation. This is probably not a form tyranny that Jefferson, Madison, Franklin et al. envisioned."

Apparently, you just can't say it too often: just because someone doesn't pay federal income taxes does not mean she doesn't pay taxes at all. If the number of people who paid no federal income tax rose above 50%, or even 99%, that would not mean that the majority of Americans were not paying taxes, period.

Hilzoy 9:57 PM Permalink | Trackbacks | Comments (72)

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Indeed the other taxes are the most regressive. Sales tax and Social Security tax are the same percentage for the poor as for the rich. Thus a person who makes perhaps $25,000 pays a far greater percentage of their income on those two taxes than does a wealthy individual.

Posted by: Stuart Shiffman on October 20, 2008 at 10:03 PM | PERMALINK

How is that number arrived at? How is that 40% figure calculated? Does it include the number of people living in poverty and the working poor? Does it include those who are collect unemployment insurance? If so, that number could reflect the deepening economic morass into which the vast majority of Americans are sinking.

Posted by: I can hz my cuntry bck? on October 20, 2008 at 10:11 PM | PERMALINK

How is that number arrived at? How is that 40% figure calculated? Does it include the number of people living in poverty and the working poor? Does it include those who are collect unemployment insurance? If so, that number could reflect the deepening economic morass into which the vast majority of Americans are sinking.

Posted by: I can hz my country bck? on October 20, 2008 at 10:11 PM | PERMALINK

the reason most of these people don't pay taxes is they get a complete refund of the taxes withheld from each check. so this tax cut obama is giving means they get to keep more of each check. isn't that what republicans always say?

Posted by: crshedd on October 20, 2008 at 10:12 PM | PERMALINK

the reason most of these people don't pay taxes is they get a complete refund of the taxes withheld from each check. so this tax cut obama is giving means they get to keep more of each check. their refunds will be smaller but they will be able to spend that money as they earn it instead of waiting a year to get it all back.
why do the republicans hate the idea of people keeping more of their money from each check?

Posted by: crshedd on October 20, 2008 at 10:14 PM | PERMALINK

it is the official position of the bush administration - agreed with by the mccain/palin campaign - that the debt of the general fund to the social security trust fund has no meaning. therefore, they have already accepted that the payroll tax is an income tax.

Posted by: howard on October 20, 2008 at 10:15 PM | PERMALINK

To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes!

Did the crowd shout "Lucky Duckies" in unison?

Posted by: koreyel on October 20, 2008 at 10:16 PM | PERMALINK

I'm wondering what percentage of that 40% are children...

Statistics don't lie. Staticians do...

Posted by: Mysticdog on October 20, 2008 at 10:21 PM | PERMALINK

A Republican just called tax cuts welfare?

Somewhere, Newt Gingrich's head just exploded.

Posted by: Chris on October 20, 2008 at 10:26 PM | PERMALINK

The solution to these worthy-of-ridicule fools is to invert their madness against them. For example: If a single-wage family earning $40,000 per year has to pay $10,000 per year for shelter, and $7,500 per year for food, and $4,000 per year for utilities, and another $4,000 per year for transportation---then the single-wage family earning $400,000 per year should pay 10 times as much; the family with an income of $4,000,000 should pay 100 times as much; the typical CEO who wallows in $40,000,000 every year in bonuses and board kickbacks should pay 1,000 times as much---and well, you pretty much get the picture now.

If we apply this logic to someone contemporary---say, CXindy McCain, for example, we would see her "$4-something-million" reported as income last year, extrapolated by her 7 houses, consuming 175% of her income. We would see the utility bills for those 7 houses consuming another 70% of her income, and those 13 cars she owns would eat up yet another 130% of her income. Her 'core" spending---shelter, food, utilities, and transportation, with not even a new pair of shoes added to the mix---would require an annual outlay of 375% of her reported income.

I feel quite comfortable that she could easily live with that scenario. You?

Posted by: Steve W. on October 20, 2008 at 10:27 PM | PERMALINK

Thanks, Steve W. It's been quite a long time since I've almost fallen out of my chair laughing.

More, please.

Posted by: Laughingman on October 20, 2008 at 10:34 PM | PERMALINK

Oops---I forgot to charge Cindy McCain for her groceries---but unfortunately, she doesn't have any money for groceries, and since her breed of human is so against "welfare," she won't be able to go to the local food pantry for food.

Looks like Cindy McCain gets to starve. But if she's going to starve, then she had better do it---and thus decrease the surplus, anti-American population that these silly right-wingers are so worried about....

Posted by: Steve W. on October 20, 2008 at 10:35 PM | PERMALINK

What bothers me about all this talk of socialistic redistribution of wealth is that it carries with it the presumption that the total remuneration everyone receives is commensurate with their worth as human beings, or even, dumbed down in our manic capitalistic free market society, with their "economic" value.

Do you believe this? Do you really think a CEO is worth 400x his average worker? That a guy who flips hamburgers isn't worth a living wage? Have you ever tried to flip hamburgers with a bunch of yahoos screaming at you?

And if you do believe these rich people do so much more than we do, ask yourselves, who determines what a job is worth?

The answer, of course, is the people who make all the money. They get to decide. Not anyone else. Don't you think they might be a little bit biased in their favor?

The problem with talking about taxes is that it puts aside the gross inequity of, (gulp) gross income. We're led to accept that billionaires do that much more than we do, so we necessarily must accept the inference that taxing them at a higher rate is a form of theft on them, and welfare for the rest of us.

Why don't we challenge the notion that what they do is so much more valuable than what we do, and hundreds of times more so?

Why are such shrinking violets?

Oh, sorry, I forgot. That would make us dirty rotten socialists. We can't fight back after that kind of accusation.

Posted by: hark on October 20, 2008 at 10:47 PM | PERMALINK

"To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes!"

American working families is not the same as Americans. Most of those 40% of Americans are dependents of a taxpayer. First thing I learned in high school science was to make sure the units in an equation made sense.

Posted by: OriGuy on October 20, 2008 at 10:48 PM | PERMALINK

FICA withholdings?

Posted by: Carl Nyberg on October 20, 2008 at 10:49 PM | PERMALINK

Obama could call it an economic stimulus package which is really what it is. No one called Bush a socialist when he sent everyone a check for 300.00.

Posted by: Leslie on October 20, 2008 at 10:50 PM | PERMALINK

There are a couple of flaws or cons in the Republican argument that you seem to have missed. The most important one is an old con for Republicans. When Republicans talk about "income taxes" they don't include any FICA taxes in that category. That means that many of the Americans that pay a significant portion of their gross (in more ways than one) income to FICA yet don't reach the level of having to pay "income taxes" (they usually get rebates on their income tax deductions) are not considered by Republicans to be "tax" payers. Tom Delay often used that logic to insult millions of Americans as not worthy of consideration and effectively leeches on the public. That, even while he was spending the Social Security funds collected - "lock box" my ass!

The other bull in the Republican argument is derived from the quote, "Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes!"

There are two distinct categories of Americans in that quote. "Working" Americans and Americans that "don't pay income taxes!" Of course many non-working Americans don't pay any income taxes. They have no income. That includes non-working spouses, children and the elderly. The irony of the 'horrified' logic the Republicans present is that if you check the income taxes paid by corporations I think you'll find that more than half the corporations in America don't pay any taxes. Yet somehow those businesses are never to be viewed as free loaders on the public.

Posted by: Amos Anan on October 20, 2008 at 10:55 PM | PERMALINK

Of course, we geniuses think it's ridiculous that people would actually fall for this bunkum, but whenever we laugh at this we should also mention all these other taxes, because it is NOT obvious to those who might be susceptible to this argument (i.e. taxpayers!).

Posted by: bruce on October 20, 2008 at 10:57 PM | PERMALINK

OriGuy, you win the cigar. The Republican asshole is, as usual, playing fast and loose with his definitions. You have to read carefully or those bastards will win.

Posted by: Ron Byers on October 20, 2008 at 10:57 PM | PERMALINK

It involves the federal government taking money from those who do pay taxes, and writing checks to those who don't.

Which is basically what the Regan and Bush tax cuts did to the middle class in order to lessen the "burden" on the super rich.

And since the money is going up the ladder and not down, then it's not even socialism. More like highway robbery.

Posted by: tomeck on October 20, 2008 at 10:57 PM | PERMALINK

Before WW II, only a tiny percentage of Americans paid income taxes. When the income tax was first passed after the passage of the 16th amendment the intent was to only tax very well off people. It was only during WW II that more and more people started moving making enough income to have to pay the tax. At that time, the brackets were not adjusted for inflation. So as inflation took hold after the war, more and more people paid the tax. Before the war, however, only a tiny sliver of the population paid any income tax.

Posted by: Cap and Gown on October 20, 2008 at 10:58 PM | PERMALINK

that well-known socialist ronald reagan came up with a similar concept. it's called the earned income credit. i guess it's only socialism if a democrat proposes a tax cut.

Posted by: mudwall jackson on October 20, 2008 at 11:06 PM | PERMALINK

Now I'm really confused. I thought that not paying taxes was the patriotic thing to do. So this must mean either (a) fairness to patriots is not an objective, or (b) patriotism is impossible. But if either of those is true then ... gosh. I give up.

Posted by: Jassalasca Jape on October 20, 2008 at 11:08 PM | PERMALINK

Um....people get a refund because they elect to have more withheld than they end up owing. Doesn't mean they don't pay SOME income tax, just less than they prepaid in withholding.

Plus, as you say, the sales tax, property tax, etc. etc. etc.

Poor people usually aren't able to claim deductions, either, since many don't pay enough mortage interest or donate enough to charity to meet the threshold, so, in fact, they end up being unable to deduct things higher income people can.

This line of argument is fucking amazing. It's like arguing that poor people are luckier than rich people because they don't have to pay dry cleaning bills for silk clothes - or pay for fur storage warehouses to store their minks.

Posted by: g on October 20, 2008 at 11:12 PM | PERMALINK

Its economic fundamentalism. They stick wingnuts in a room, pound supply-side in their heads, and tell them that orthodox Keynesian economics is heresy.

Posted by: John Henry on October 20, 2008 at 11:15 PM | PERMALINK

How about if we all agree that once we get to 51% we vote Cliff May off the island!

Posted by: tomeck on October 20, 2008 at 11:21 PM | PERMALINK

So I guess this where I sign up to be a cheerleader for the welfare state? I hate Sarah Palin and Joe the Plumber too. Tax those rich folks and send those refundable credits my way please.

Posted by: Tristan on October 20, 2008 at 11:21 PM | PERMALINK

If the number of people who paid no federal income tax rose above 50%, or even 99%, that would not mean that the majority of Americans were not paying taxes, period. -- Hilzoy

No. All it would mean is that "50% or even 99%" of the population was below poverty level. Which (especially the second number)is how McBush thinks the pie *should* be divided...

Oh, BTW... In your list of taxes, you forgot a couple. I can forgive you the "death taxes", since the 40-percenters who pay no federal income tax aren't likely to be paying those, either; those are "above their station in life". But, to forget the property taxes? How *could you*???? Everyone has a car and, except for Gov Gilmore's Virginia, everyone owes taxes on it...

Posted by: exlibra on October 20, 2008 at 11:41 PM | PERMALINK

Did you notice that your exotic list of taxes didn't include the payroll tax ? That is the big one paid by everyone with labor income.

Also odd that they are denouncing refundable tax credits, since McCain's health care plan is based on refundable tax credits.

On the other hand, I think the idea that if 51% of people don't pay income tax, then there will be a huge change in attitudes towards the income tax is true. It's just that I like that kind of tyranny of the majority (which is exactly what the founders -- who were rich -- feared).

I think the hysteria over Obama's tax proposal is based on the facts that conservatives believe that, once people figure out that an income tax increase for the rich can mean that they get the money, they will never vote Republican again (unless they are rich). I don't know if this is Obama's plan, but I've been arguing for years that it is exactly what the Democrats should do -- devastating polticis and good policy too.

Posted by: Robert Waldmann on October 20, 2008 at 11:43 PM | PERMALINK

My parents don't pay any federal income tax. Seems my mom had the bad fortune to have a stroke and end up in a nursing home. The $60,000+ a year she racks up in medical and nursing home expenses more than offsets any income from Social Security, pensions and investments. So, voila! No federal income tax.

What a couple of deadbeats they are, huh? Probably socialists, too.

Posted by: dw on October 20, 2008 at 11:45 PM | PERMALINK

Sales tax and Social Security tax are the same percentage for the poor as for the rich.

It's worse than that --- you only pay on the first $102,000 of gross wages so the effective percentage of income is less for wage earners making more than that. And you don't pay FICA on investment income at all.

Posted by: on October 20, 2008 at 11:49 PM | PERMALINK

So I guess this where I sign up to be a cheerleader for the welfare state? I hate Sarah Palin and Joe the Plumber too. Tax those rich folks and send those refundable credits my way please.
Posted by: Tristan

We would, but we reserve use of USPS for those who appreciate and are willing to pay the cost of living in a civilized country.

I hear Pakistan is nice this time of year. Let me know how you like your individualistic paradise in the mountain country.

Posted by: Gonads on October 20, 2008 at 11:49 PM | PERMALINK

I compared wealth distribution to composite taxes share paid once and concluded the rich pay 10% more than they should.

Posted by: MattYoung on October 21, 2008 at 12:01 AM | PERMALINK
A majority of American would enjoy representation without taxation.
WTF! Isn't this what they've spent decades fighting for?! Posted by: bubba on October 21, 2008 at 12:08 AM | PERMALINK

"I compared wealth distribution to composite taxes share paid once and concluded the rich pay 10% more than they should."

You can't simply use wealth distribution alone as a means of comparison. What you have to also compare is actual government service usage. If a person (or persons, as in the case of investors) owns a company like WalMart, they are getting advantages *way* beyond what they pay in taxes in terms of transportation, energy, defense, law enforcement, etc. infrastructure that *we all* pay for. If they actually had to pay for these things themselves...well, let's just say that there wouldn't be any national retail chain called WalMart.

One final thing. As already indicated, many on the right leave out payroll taxes when putting forth this argument. I say that we let them do so, and in exchange we actually remove all payroll taxes from the unified budget, and force the government to actually fund Social Security. Shit, they haven't seen taxes like what would be required to make up the shortfall caused by taking payroll taxes out of the budget. So, let those on the right make the choice - if payroll taxes are out, then they're out. If they're in, then they're in. There's no mushy middle here.

Posted by: OhNoNotAgain on October 21, 2008 at 12:18 AM | PERMALINK

Then why is there is a box to check on your unemployment worksheet for withholding taxes? It's almost like...wait for it...they tax unemployment benefits.

That's all, bye!

Posted by: Scaramouche on October 21, 2008 at 12:35 AM | PERMALINK

McCain's campaign has been bent out of shape for quite a while about these low or no taxpayers.

Mitt Romney complained in his convention speech that Obama would increase the number of people who pay no income tax! I thought it was strange at the time, but I've heard it repeated.

I don't see how the reconcile this point with the Obama will raise your taxes point.

If it was just about money I wouldn't mind so much, everyone loves money and hates paying taxes. But Republicans can't leave it at that. In their world, if you make a lot of money it means you work hard, harder than those who make less, like the total goof-off that works the late shift at 7-11, or the janitor who gets to scrub toilets and floors in peace and quiet at night while listening to music.

So the rich pay more tax on the income over a certain level, but they get all the tax breaks for people making less. Inside each rich person is a middle class person who gets all the same breaks. They get so many breaks that they offset the bracket increase for couples making more than $200,000. Slowly the savings are eaten up until the income reaches $250,000.

The Republicans continue with the trickle down threats: if you raise taxes on "those who create jobs" ... the economy will never recover.

Yet I just read in the WSJ that some of the bailout money may be used for mergers. Usually mergers result in lost jobs.

Posted by: tomj on October 21, 2008 at 12:54 AM | PERMALINK

I compared wealth distribution to composite taxes share paid once and concluded the rich pay 10% more than they should.


Posted by: MattYoung

Really? If that's the case, the rich would be paying 80% of all taxes, because they own 70% of all the wealth in the country. These are the top 10% we're talking about.

Those "lucky duckie" deadbeats the Republicans are so incensed about not paying their fair share? Those guys own 2/10ths of 1% of the wealth.

And those figures are from 1998. The richest 10% now own more than they did then, while the poorest own less.

As usual, your logic, your facts, and your mathematical ability are severely lacking.

Posted by: Jennifer on October 21, 2008 at 1:08 AM | PERMALINK

Don't know if this point has already been made, but... the internal revenue code distinguishes between income taxes and employment taxes. Income is restricted to gains derived from capital investments, and is called an 'income tax'. Income derived from a salaried or hourly position, however, are construed as 'employment' income and taxed under a separate provision.

Posted by: scudbucket on October 21, 2008 at 1:47 AM | PERMALINK

I have to say, it's a lot of fun watching these folks fall all over themselves trying to find something relevant to say - and seeing their circle jerk get smaller and smaller.

It's pure camp. Better than the first season of Desperate Housewives. And approaching Mommie Dearest status.

Posted by: eric on October 21, 2008 at 1:51 AM | PERMALINK

...and to fill in the dots... that's why it is plausible to say that 40% of Americans don't pay income taxes. They don't. They pay taxes on their wages/salaries.

Posted by: scudbucket on October 21, 2008 at 1:53 AM | PERMALINK

It also means a high rate of unemployment from trickle down economics...but...but that is impossible...we cut taxes for the very wealthy and the corporations because we knew they would create jobs...build factories etc...what happened...oh they didn't pay taxes and they still got representation??? In the '30s the government created jobs so people could make enough money to pay taxes...until the rich got deregulated and hired slave labor oversees because they were greedy and we got unemployment and couldn't afford to pay income taxes...

The 'corner's box' is a more appropriate name for that group

Posted by: joey on October 21, 2008 at 1:58 AM | PERMALINK

btw...that 40% who don't pay income taxes includes non working mothers, grand parents, and children...of course they don't pay income taxes...they don't work...what a load of crap...what a load of low information republican supporters...McCain will next try to say that these are the same 40% that make up ACORN and don't pay taxes. He's such an irritating goober.

Posted by: joey on October 21, 2008 at 2:19 AM | PERMALINK

The other 40% pay payroll taxes, which are different from income taxes. People who work lower-paying jobs pay payroll taxes; people who make more money pay income taxes.

You're right that the Republicans are being dishonest, but you're missing the fact that the 40% pay payroll taxes, which are essentially the equivilent of income taxes.

Posted by: Frank on October 21, 2008 at 3:03 AM | PERMALINK

Who IS this 40% of Americans that don't pay income tax? That sounds bogus to me--but if true, how do you get into that club?

Posted by: Helena Montana on October 21, 2008 at 5:31 AM | PERMALINK

Wouldn't the more important question be do we have a country where 40% (if that is in fact the figure) of the working population doesn't make enough to pay income taxes? I'm sure those "lucky duckies" would very much like to earn another $5,000, $10,000 ir $15,000. Don't you?

Posted by: bob on October 21, 2008 at 6:00 AM | PERMALINK

Wouldn't the more important question be do we have a country where 40% (if that is in fact the figure) of the working population doesn't make enough to pay income taxes? I'm sure those "lucky duckies" would very much like to earn another $5,000, $10,000 ir $15,000. Don't you?

Posted by: bob on October 21, 2008 at 6:00 AM | PERMALINK

Great question about where that 40 pecent figure comes from. And (surprise!) it turns out that answering that also allows a better answer to the "not paying taxes" argument than the sophistry proudly trotted out here and on every other blog reciting that talking point.

Here we go - the 40% figure comes from this 2006 study; more helpful background from 2005.

It turns out that about 75 percent of the people "not paying taxes" are filing returns but have a zero *or negative* payment due to the Earned Income Tax Credit (last expanded under Clinton/Gingrich in 1997) or the expanded refundable child credit (expanded under Bush).

So one might argue that even more people will "go negative" under Barack. That may or not be a big deal, but under Bush the "non-payers" rose from about 25% (stedy during the Clinton years) to 32%, probably due to the child credit and the weak economy.

Oh, yes, about a third of the filing non-payers are 18-24, so they may not count as Obama's "working families" (if they are single and childless, such as a college student working part time.)

The other 25 percent on non-payers are also non-filers. About 2/3 of this crowd are 5 or older - dare we guess they are retired and below the income threshold required to file? In which case they aren't "working families" either.

As to the argument being made in this post that people talking about income tax cuts really might be referring to any and all taxes - well, that is fairly sloppy usage but we find support right at Obama's website:

"Eliminating Income Taxes for Seniors Making Less than $50,000. Barack Obama will eliminate all income taxation of seniors making less than $50,000 per year. **This will eliminate taxes for 7 million seniors** saving them an average of $1,400 a year-- and will also mean that 27 million seniors will not need to file an income tax return at all."

My emphasis on "this will eliminate taxes for 7 million seniors". I would not have thought that a mere reduction in the income tax would have eliminated their duty to pay sales taxes, gasoline tax, liquor excise taxes, the estate tax, and so on, but I guess it does. Or maybe this is sloppy usage and we are suppose to know he means "income tax".

Posted by: Tom Maguire on October 21, 2008 at 7:03 AM | PERMALINK

My immediate reaction to the 40% number - fck, but we've got a lot of poor people.

Posted by: Mo on October 21, 2008 at 7:53 AM | PERMALINK

I'm not smart on tax policy, but I did find this link instructive -- even if it is true (as it seems to be) that "poor people don't pay income tax," this means they don't send in a check with a 1040 form in April. They do pay taxes on their incomes, however, in the form of payroll taxes -- which, if this report is to be believed, is a higher burden on them than it is on top earners. I'll accept as within the range of acceptable synonyms that a "payroll" tax and an "income" tax are roughly analogous, since your paycheck is your income.

http://www.taxfoundation.org/news/show/22287.html

Posted by: Hemlock for Gadflies on October 21, 2008 at 7:58 AM | PERMALINK

"People" who don't pay taxes: large corporations.

Posted by: bdop4 on October 21, 2008 at 8:40 AM | PERMALINK

the majority of Americans not paying taxes would elect leaders who decide how much the minority must fork over to the government

It gets better than that!
They also decide to cut corporate subsidies and buy frivolous crap like universal health care!

The nerve!

Better pay the bastards a little more so they earn enough to pay taxes and it won't feel so bad.

This just ain't right, only people with money should run a country. It's what this nation as built on after the founders built the foundation.

Posted by: toowearyforoutrage on October 21, 2008 at 8:43 AM | PERMALINK

That 40% sounds high to me, but I'm sure it includes children, retired people, disabled Americans and stay-at-home parents.

This is just a wild-assed guess, but I bet that if you calculate the statistic for wage-earners that work the entire year (not teens working summer jobs), the percentage paying income taxes is probably near 90%. Of course, as Cliff pointed out, everybody pays taxes.

Posted by: Mark B on October 21, 2008 at 9:57 AM | PERMALINK

I, for one, don't mind at all paying my taxes. I have discussions often in my office about taxes. And for those that don't like paying them I offer to take the taxable income away from them. Then they won't have to pay taxes. No one has taken me up on the offer.

When I make more money I pay more taxes... I think thats a good thing, much better than the alternative... making less money.

Posted by: c. on October 21, 2008 at 10:02 AM | PERMALINK

My understanding is that the "40%" claim is made by not counting payroll tax as income tax. In other words, if taxes are taken out of your paycheck but you don't have to send the government a check on April 15, you "don't pay taxes."

Posted by: Barbara O'Brien on October 21, 2008 at 10:10 AM | PERMALINK

40% of Americans today don't pay income taxes!

This is one of those absurd talking points I keep hearing now (heard it first from Ari Fleischer on "The Daily Show").

I decided to do a little investigating, and found that the Tax Foundation does "studies" on these things periodically.

Here's what the "study" actually says:
"During 2006, Tax Foundation economists estimate that roughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability. That's out of a total of 136 million federal tax returns that will be filed. Adding to this figure the 15 million households and individuals who file no tax return at all, roughly 121 million Americans -- or 41 percent of the U.S. population -- will be completely outside the federal income tax system in 2006."

So, horrors of horrors -- infants, tots, and teenagers not of working age aren't paying federal income taxes. Of course there are adults in that 41%, but they are counting children when they say "40% don't pay income taxes!" They're also forgetting that most states have income taxes as well.

The fact is, in 2006, the labor force level averaged about 151 million. Of that, 144 million were employed. 138 million federal income tax returns were filed, and of those, 93 million paid federal income taxes after all credits.

Plus, McCain himself is offering a whopping $5,000 refundable tax credit for married filers and $2,500 for single filers, which is much larger than Obama's proposed refundable tax credits. So I'm not sure why the critique about "back door welfare" is directed at Obama.

The fact of the matter is that a HUGE percentage of the gains in disposable income (income minus federal income taxes) from 2002-2006 flowed directly to the very richest Americans - on the order of about 23% to the top 0.1%, if you can believe it. This group saw its collective income more than double in four years, while their effective tax rate plummeted. This is in a time when the 75th percentile on down actually saw real declines in after-tax income.

Anyone who makes these kinds of dumb arguments about "socialism" or the "rich getting soaked" don't understand that progressive taxation is sound economics. It has nothing to do with "fairness" or "justice". If they don't support progressive taxation, then they don't understand the concept of marginal utility and the effect on GDP of personal consumption dollars, which more heavily come from the middle class downwards relative to income dispersion.

Posted by: tre on October 21, 2008 at 10:15 AM | PERMALINK

Another note - if someone chooses to raise this notion of "people not paying income taxes", it would be good to remind them that the top 10 states (according to the Tax Foundation study mentioned above) in that respect are the following (with Bush's 2004 margin in parentheses):

Mississippi(+20)
Louisiana (+15)
Arkansas (+10)
New Mexico (+1)
Alabama (+26)
Texas (+23)
Montana (+21)
Oklahoma (+31)
South Carolina (+17)
Georgia (+17)

Conversely, the bottom 10 are as follows:
Alaska (+26)
Massachusetts (-25)
Connecticut (-10)
New Hampshire (-1)
Minnesota (-3)
Maryland (-13)
Delaware (-8)
Washington (-7)
Rhode Island (-21)
Virginia (+8)

Posted by: tre on October 21, 2008 at 10:32 AM | PERMALINK

... Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes!

I don't think it's an accident that Strassel refers to "American working families" in one phrase, and individual "Americans" in the other. I smell a rat.

Posted by: synykyl on October 21, 2008 at 10:41 AM | PERMALINK

Another inconvenient fact to kick the legs out from under their argument: The federal income tax was only instituted in 1894. So for the first century-and-change of US history, all Americans enjoyed representation without taxation (as they're defining it). Tyrannical indeed.

Posted by: Adam Rice on October 21, 2008 at 10:56 AM | PERMALINK

It's fine to be against refundable tax credits, and the politics of considering the payroll tax as general revenue, rather than as dedicated to Social Security, are more complicated than Hilzoy is perhaps allowing. Short version: allowing Social Security to become ever more redistibutive needlessly undermines political support for the program.

But McCain isn't against refundable tax credits, as his health care proposal contains a $2500/5000 individual/family fatty of a refundable credit. So he's just talking out of his a$$, as usual.

Posted by: kth on October 21, 2008 at 11:18 AM | PERMALINK

Progressive taxes/Regressive taxes

Shouldn't we all be treated equally under the law?

Posted by: frank on October 21, 2008 at 12:26 PM | PERMALINK

Progressive taxes/Regressive taxes

Shouldn't we all be treated equally under the law?

Posted by: frank on October 21, 2008 at 12:26 PM | PERMALINK

"So, horrors of horrors -- infants, tots, and teenagers not of working age aren't paying federal income taxes. Of course there are adults in that 41%, but they are counting children when they say "40% don't pay income taxes!""

"Infants, tots and teenagers" are also counted in the 59% that DO pay taxes, dildo. The numbers are based on the tax returns filed.

43.4 million tax returns were filed in which the filer (and therefore the filer's dependents) did not owe taxes. That's 43 million households that make enough income to have to file a return, but not enough to pay taxes. That's a lot.

Posted by: Joe on October 21, 2008 at 1:02 PM | PERMALINK

Wow, I got called "dildo". McCain '08!

Posted by: tre on October 21, 2008 at 1:22 PM | PERMALINK

Ah, so, if I rent an apartment using money from my welfare check Obama could call it federal housing. Brilliant!

Posted by: pidgas on October 21, 2008 at 4:21 PM | PERMALINK

When the Federal income tax was first established, back in 1901 or so, only the top 1% of earners were subject to it.

Maybe, as good conservatives all, we should get back to that.

Posted by: mjfgates on October 21, 2008 at 5:01 PM | PERMALINK

Lest we forget...

Who expanded the Earned Income (Refundable) Tax Credit?

Who indexed it to inflation?

Who passed it in the Tax Reform Act of 1986?

That's right.

President Ronald Reagan.


You won't hear McCain, Palin or the "conservatives" who claim they idolise the 'Gipper' mentioning that quite terrifying period of totalitarian Socialist rule very often.

(That would be because they are a bunch of hypocrites who don't understand their own candidate's crappy health care plan)

Posted by: Chris on October 21, 2008 at 5:15 PM | PERMALINK

Just how does the magic one Obama lower the non Federal taxes? You think the Cities and States are giving up on excise, property and sales taxes? Its just welfare by another name

Posted by: JPSD on October 21, 2008 at 5:47 PM | PERMALINK

Actually, I don't believe the 95% figure is correct. It's based on what your taxable income would be if there were no deductions for disabilities, education, medical expenses, etc.. Notice none of those tax calculators take those things into account. Nevertheless, it's still rather obvious that the Obama plan is infinitely better than McCain's. Tax cuts should mainly go to the consuming classes who will spend the money and rev up the economy, rather than the investor class who will just bid up the stock market, and already have the money to do so anyway. Every recession in Western history has been caused by overinvestment (overvaluation) and underconsumption.

Posted by: Jeff on October 21, 2008 at 8:45 PM | PERMALINK

I've heard that the top 1 percent pays 40 percent of total income taxes and that the top 1 percent makes 40 percent of total income. Shouldn't the top 1 percent be paying more than 40 percent since it's supposed to be a progressive tax. That's not even taking into account all the tax deductions that wealthier people take compared to poor or middle class folks.

Posted by: warren terrah on October 21, 2008 at 10:37 PM | PERMALINK

I'm going to pay my taxes by ripping out long stretches of guard rail and scrapping it.

If the government wants to give my taxes to failed banks and drive us over a cliff, I see no need for the guard rails.

Posted by: K Ackermann on October 21, 2008 at 10:50 PM | PERMALINK

re: hark

You're an idiot. Wages are set on the open market; nobody (other than the government) gets to decide what people's wages are unilaterally.

Businesses will pay the minimum amount for labor possible, just like everything else. Workers decide what jobs they will do for what price. If a business can't find someone to flip burgers for $5/hr, then they'll pay more, until they do find someone to flip burgers. The price of the burger will probably go up, because all costs are ultimately passed on to the customer.

In other words, you only get paid as little as you allow yourself to. If you're unhappy with your wage, why are you doing the job? Go get or make yourself a different job, one with less competition.

Posted by: Adam on October 22, 2008 at 2:33 AM | PERMALINK




 

 

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