Friday, April 16, 2010

About That 47%

Does it matter to our cause that 47% of Americans apparently pay no federal income taxes? Ramesh Ponnuru over at the Corner on NRO thinks not, and I had already been drifting in that direction. The number is a little misleading, because it implies that there are folks who are free riders on the system, getting benefits without paying their fair share. However, I notice that many of the folks at the Tea Party rallies might be in that group, but they are out there protesting government largess just the same. This is because the tax and spend structure of the government impacts them just the same. Further, people making under $50,000 are still paying a lot in taxes.
This average household would have paid 0.8 percent of its income in corporate taxes (through the stocks it owned), 0.9 percent in gas and other federal excise taxes, and 9.5 percent in payroll taxes. Add these up, and the family’s total federal tax rate was 14.2 percent.
Further, these families are very hard hit in California by a sales tax of 8.75%, much of which goes to pay for federally mandated spending, set to increase under Obamacare.

The fact these households are still paying taxes, presents an opportunity and a challenge. The only way one can enact a tax cut for the lower middle class, would be to reduce the payroll tax, which would threaten social security. Obama has famously pledged he would not raise taxes on ... who can remember but it was a lie anyway. As the looming deficits hit, he will be forced to either cut spending, fat chance, or raise taxes on folks he promised he wouldn't. Meanwhile, those folks know this is coming, so they show up at the Tea Party rallies. The real issue isn't so much who is taxed, but the fact that government has grown overwhelmingly big, and no one can pay for it, no matter who we tax.

More from Ramesh Ponnuru:

The argument — which has been steadily picking up adherents on the Right for ten years — is that people who pay no income taxes are likely to perceive big government as a free good and therefore become more supportive of it than they would be if they paid income taxes. A secondary argument is that it is important, as a matter of both morals and civics, for everyone to pay taxes.

These claims, I think, overstate the importance of the distinction between income taxes and payroll taxes. I've never seen evidence that people who pay payroll taxes but have no income-tax liability regard themselves as not paying taxes or favor big government.

1 comment:

  1. We are virtually polar opposites on the political spectrum, but this and the post on racism strike me as exceptionally thoughtful and rare. I doubt we will ever agree, but I'm struck by the way you think outside the ideological box.