Rich Get Great Returns on Their Taxes

Rich Uncle PennybagsThe Urban Institute recently put out a video on the big Romney line that 47% of Americans don’t pay any federal income taxes. The video itself is okay, but more important, it provides some really great information that is worth stressing. What’s more, it gets to a problem with the way that Americans think about how the government taxes and spends. It is absolutely not the case that the rich are taxed to take care of the poor. In general, everyone is taxed for benefits that go overwhelmingly to the rich.

It rightly points out that while higher income earners pay more in taxes, they also get more from the government. There is a strong tendency for Americans to think that government only helps people through direct cash payments. This is absurd. It means that families receiving $100 in food stamps are getting government help but banks getting billions of dollars in free loans are not. This confusion is exactly what the power elite want, of course. But it is deadly to the society and ends up giving us terrible policy. For example, over the last 20 years, it has become harder and harder for individuals to file for bankruptcy. But during that same time, it has become easier and easier for corporations to file for bankruptcy. That only makes sense in a society in which we define welfare as only something that goes to poor people.

The video then goes on to discuss three issues related to Romney’s fact. (Note: it is an old conservative talking point, but Romney is the one who made it famous.) The first issue is that the 47% number is only this high because the economy is doing so poorly. That’s important to remember in light of recent reporting (pdf) that 95% of the income gains since 2009 have gone to the top 1% of earners. In 2008 and 2009, an even higher percentage of people paid no federal income taxes. But before the crisis, the number was lower—only 38% in 2007. It is estimated to be 43% this year and 34% in 2022.

The second issue is one that I’ve talked about a lot here: federal income taxes are just one form of taxes. It is like saying, “99% of Americans pay no luxury tax!” This is deliberately misleading, implying that the poor pay no taxes. No mention is made of payroll taxes for example, because that wouldn’t make the argument that the poor are freeloaders. For example, a person making $20,000 per year pays a payroll tax rate of 7.65% while a person making $50 million per year pays a payroll tax rate of less than 0.02%. That’s our tax code too, but we never hear conservatives ranting about it.

The third issue is the most important part of the video. It divides up the 43% (this year’s value) to show who they are. Of these, 29 percentage points (67%) work. They pay the payroll tax, but they simply don’t make enough money to owe federal income taxes. The remaining 14 percentage points (33%) pay neither federal income nor payroll taxes. Of these, 10 percentage points (23%) are retired and too poor to pay federal income taxes. Almost all the rest (3 percentage points or 7%) are just too poor to pay anything. That leaves us with 1 percentage point (2%) who are either rich (all income is capital gains) or they own businesses that are failing or are going bankrupt because of medical bills.

So the whole idea that there are 53% who are “makers” and 47% who are “takers” is just ridiculous. But conservatives and liberals alike accept this framing of our society. Of course, no one sees themselves as a taker. I’ve talked to a number of people who are on SSI who are very conservative and do not think that they are takers. It is always his “welfare” and my “government program that I paid into!” That’s fine if conservatives want to think this way. But as liberals, we need to fight against accepting conservative frames for policy debates. And when it comes to this issue, I don’t think that most liberals even realize that it is a conservative frame.

As I’ve shown in the past, when you look at all taxes paid, our system is barely progressive:

Total Taxes Paid by Income Quintile

Even though the rich of this country get enormous direct support from the government, the bigger benefits are implicit. For example, the implicit insurance of “too big to fail” banks is estimated to be worth $60 billion per year. That is roughly the same amount the government spends feeding the poor. Similarly, the rich disproportionately benefit from the stable domestic and international infrastructure. In fact, I think the rich are fools to think that they would like a “libertarian utopia.” The truth is that such a thing would be far less stable and that would hurt, if not eventually destroy, their wealth. Regardless, the rich do very well by our system and are not over taxed. It is an outrage that we blame our underfunded government on the fact that the poor aren’t being taxed enough. It is even worse that those who most want to cut the taxes of the rich simultaneously call for raising the taxes of the poor.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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