Today, a record number of Americans—52 million, or 36 percent of all filers—have no direct connection with the basic cost of government because they pay no income taxes. If we add this group to the people who have some income but don’t file a tax return, the ranks of American households outside the income tax system rise to 48 percent.
It gets worse, just keep reading. And remember the liberal mantra that evil Rich people don’t pay any taxes!
Tax Expenditures and Progressivity
There is a common belief that because so many tax expenditures benefit upper-income taxpayers, the “rich” are not paying their fair share of taxes. Nothing could be further from the truth.
Indeed, because of the expansion of tax benefits aimed at low- and middle-income households, the OECD finds that the U.S. has the most progressive income tax system of any industrialized country. What that means is that the top 10 percent of U.S. taxpayers pay a larger share of the income tax burden than do the wealthiest decile in any other industrialized country, including traditionally “high-tax” countries such as France, Italy, and Sweden.
Meanwhile, because of the generosity of such preferences as the EITC and child credit, low-income Americans have the lowest income tax burden of any OECD nation. Indeed, the study reports that while most countries rely more on cash transfers than taxes to redistribute income, the U.S. stands out as “achieving greater redistribution through the tax system than through cash transfers.”
The share of the income tax burden borne by America’s wealthiest taxpayers has been growing steadily for more than two decades. Figure 4 compares the share of income taxes paid by the top 1 percent of taxpayers to the share paid by the bottom 90 percent of taxpayers.
The chart shows that, as of 2008, the top 1 percent of taxpayers paid 38 percent of all income taxes, while the bottom 90 percent of taxpayers paid just 30 percent of the income tax burden. By any measure, this is the sign of a very progressive tax system.
Indeed, many of these 52 million tax filers now look to the IRS as a source of income thanks to the more than $100 billion in refundable tax credits paid to people who have no income tax liability.
As a result of removing millions of people from the bottom of the tax rolls, we have dramatically reduced the number of people with “skin in the game.” Indeed, the top 1 percent of taxpayers now pays a greater share of the income tax burden than the bottom 90 percent combined.
Sadly, individuals are not the only taxpayers looking to the IRS as a source of income. The proliferation of tax credits aimed at promoting technologies such as renewable energy and fuel-efficient products has addicted many companies and industries to IRS handouts. In a recent case, one-third of the profits of a major appliance company were attributable to energy production credits.
Ironically, but perhaps not surprisingly, the sectors suffering the biggest financial crises today—health care, housing, and state and local governments—all receive the most subsidies through the tax code. The cure for what ails these industries is to be weaned off the tax code, not given more subsidies through such things as the First Time Homebuyer’s Credit, Premium Assistance credits, or more tax-free bonds.
Washington can actually do more for the American people by doing less. The solution lies in fundamental tax reform. Indeed, as the plan authored by Erskine Bowles and Alan Simpson (co-chairmen of President Obama’s National Commission on Fiscal Responsibility and Reform), demonstrated, Americans could enjoy much lower tax rates, and the government could raise the same amount of revenue if most—if not all—tax expenditures were eliminated.
That said, the primary goal of fundamental tax reform should not be raising more money for government. The primary goal should be improving the nation’s long-term economic growth and lifting living standards.
Economists at the OECD have determined that high corporate and personal income tax rates are the most harmful taxes for long-term economic growth. Unfortunately, the U.S. has one of the highest corporate income taxes among industrialized nations and one of the most progressive personal income tax systems.
Cutting these rates while broadening the tax base would greatly improve the nation’s prospects for long-term GDP growth. The benefits of higher economic growth will accrue to taxpayers and Uncle Sam alike.
To be sure, many people improperly view the forgone revenue from tax expenditures as “the government’s money.” By this view, what the tax code allows taxpayers to keep through tax preferences has thus been “spent” in the same manner as a government program.
But there is a very real moral and functional difference between the government taking $1,000 from a taxpayer and giving it to the Department of Energy for switch grass research, and a tax preference which allows that taxpayer to keep $1,000 of his own money because he purchased new windows for his home. The tax credit may be poor tax policy, but the transaction is clearly one that the taxpayer chose of his own accord. The government did not actively take his money and give it to Home Depot for the new windows.
One of the dominant issues in any discussion of tax expenditures is who benefits from them. Because the value of a tax deduction depends upon the taxpayer’s marginal tax rate, many of the largest and best known tax preferences, such as the mortgage interest deduction, do tend to benefit upper-income taxpayers. However, over the past 20 years or so, lawmakers have increasingly turned to using tax credits to benefit low- and middle-income taxpayers. This has had the unintended consequence of removing millions of taxpayers from the tax rolls altogether.
Most tax credits can only reduce the amount a taxpayer owes to zero, but the EITC and the child tax credit are also refundable, meaning that taxpayers are eligible to receive a check even if they have paid no income tax during the year. Those tax returns have become, in effect, a claim form for a subsidy delivered through the tax system in much the same way that a traditional government program sends out a welfare check or a farm support check.
In 2008, according to the most recent IRS data available, 25 million tax filers received $51.6 billion in EITC benefits. Of this amount, $50.5 billion was refundable in excess of their income tax liability. Also in 2008, some 25.3 million filers received $30.7 billion in child tax credit benefits, with more than 18 million of these filers getting $20.5 billion in refundable checks. Many families are eligible for both the EITC and the child credit. These are not refunds of overpaid tax; they are payments to people who have already gotten back everything that was withheld from their paychecks during the year.
In an important 2009 study, in order to gain a better understanding of the overall amount of redistribution that occurs through both tax and spending policies, Tax Foundation economists measured how much families at various income levels paid in taxes versus how much they received in spending benefits. The results of this analysis show that federal tax and spending policies are very heavily tilted to the poor and middle-class, even before considering the Obama administration’s major policy initiatives such as health care reform. For 2010, the Tax Foundation report found that the bottom 60 percent of American families received more in government spending than they paid in taxes.
Not surprisingly, as Figure 5 shows, government spent $10.44 on the lowest-income families for every dollar they paid in taxes. Remarkably, families in the middle-income group received $1.15 for every dollar they paid in taxes.
By contrast, the top 40 percent of families paid more in taxes as a group than they received in government spending benefits. The highest-income families received 43 cents in government spending for every dollar they pay in taxes, even though they are assumed in this study to disproportionately benefit from public goods such as national defense.
Overall, federal tax and spending policies combined to redistribute more than $824 billion from the top 40 percent of families to the bottom 60 percent of families in 2010. In other words, the entire federal fiscal system is very progressive and redistributive.
But you’ll never hear that from your anti-rich, anti-corporate Class Warfare liberal.
Because that like asking Al Sharpton to not be a Race Baiter. It’s what they do. It’s at the core of what they do.
That’s the game.
And that’s their skin in that game. Without it, they have no skin.
And speaking of snakes and skin: Rep. Anthony “The Weiner” Weiner who once boasted that ObamaCare and he were “one” now wants waivers from ObamaCare for New York City because he wants to run for Mayor some day soon.
That’s his skin in the game.
New York Democratic Rep. Anthony Weiner toasted the one-year anniversary of Obamacare this week — and accidentally spilled his champagne glass all over the disastrous, one-size-fits-all mandate. Ostensibly one of the federal health care law’s staunchest defenders, Weiner exposed its ultimate folly by pushing for a special cost-saving regulatory exemption for New York City.
If it’s good for the city Weiner wants to be mayor of, why not for each and every individual American and American business that wants to be free of Obamacare’s shackles?
Weiner joins a bevy of the “Patient Protection and Affordable Care Act’s” loudest cheerleaders — unions, foundations and left-leaning corporations — in clamoring for more waivers for favors. (The list of federal waiver recipients now tops 1,000, covering more than 2.6 million workers.) And he follows a gaggle of health care takeover-promoting Democrats maneuvering on Capitol Hill for get-out-of-Obamacare loopholes.
At a speech before the George Soros-supported Center for American Progress, as reported by Politico.com, Weiner revealed that he’s “in the process now of trying to see if we can take (President Barack Obama) up on” a favor waiver and is “taking a look at all of the money we spend in Medicaid and Medicare and maybe New York City can come up with a better plan.” Echoing all the Republican critics of Obamacare who objected to top-down rules that override local variations in health care expenditures, Weiner explained: “I’m just looking internally to whether the city can save money and have more control over its own destiny.”
More local control over taxpayers’ destiny, eh? Give that man a “Hands Off My Health Care” sign, a Gadsden flag and a tea party membership card ASAP!
I kid, of course. The ultimate agenda of many waiver-seekers is to create a wormhole path to even more radical restructuring of the health system. Weiner has brazenly called for a single-payer “public option” to replace Obamacare should it be repealed. Democratic Sen. Ron Wyden of Oregon has also crusaded for more Kabuki “flexibility” in the law through a bipartisan state waiver proposal.
But as The Heritage Foundation noted, the plan “simply changes a date on an existing ‘state innovation’ provision of Obamacare from 2017 to 2014 — still well after the federal Obamacare infrastructure has been cemented in place.” And it is essentially “a back-door vehicle for progressive states to enact the ‘public option’ and speed up the establishment of a single-payer system for health care.” White House health care advisers Nancy-Ann DeParle and Stephanie Cutter further reinforced in a conference call to liberal advocates that the bill would help states implement single-payer health care plans, such as those tested in Connecticut and Vermont.
Weiner argues that the waiver process dispels “this notion that the government is shoving the bill down people’s throats.” But only the politically connected, deep-pocketed, lawyered-up and Beltway-savvy can apply. And the White House refuses to shed more light on its decision-making process. Obama’s selective favor waivers simply underscore the notion that unaccountable regulatory bureaucrats are presiding over government by the cronies, for the cronies and of the cronies.
Real control over our destinies means flexibility and choice for all. Repeal is the ultimate democratic waiver. (Michelle Malkin)
But more likely, we’ll be skinned as game!! 🙂