The Grand Illusion
Several days ago, poor Mitt Romney committed the unforgivable. He said something so obvious, so accurate, and so to the point that people, especially Obama and the leftists, are jumping all over him. Now… as must be clear to most of my readers, I’m generally appalled at the Republican positions on many issues, but what I find ironic is when someone whose positions I dislike says something that is absolutely obvious… and gets roundly criticized. I fully admit that I supported Gerald Ford over Jimmy Carter, but I applauded when Carter made the obvious statement that, “Life is not fair,” for which the media and everyone condemned him.
What was it that Mitt said? In effect, he was saying that he was never going to reach 47% of the population because they were getting benefits from the government for which they weren’t paying. And he’s absolutely right. When only 53% of Americans pay federal income taxes, then the 47% who don’t are getting all the federal programs paid for by those taxes for nothing. Should they get such benefits? Of course, some certainly should – such as the truly deserving poor, hungry children, and others that have a true need.
Some of the liberals have made the point that many of the “47%” do pay taxes, such as Social Security and Medicare payroll taxes, sales taxes, and property taxes, and they’re right. Many do pay those taxes. But what the left wing ignores is that those taxes do not fund most government programs, and for all the hullabaloo about deficits, Medicare and Social Security are not yet contributing to those deficits. The deficits are caused by outlays in programs funded by federal income taxes.
But the larger questions raised by Mitt’s offhand, if honest, comment, go beyond that. As some courageous Republicans and many Democrats have noted, Americans now pay the lowest percentage of their income in federal taxes in more than 70 years… and yet the Republicans, the Tea Party, and the Libertarians are all demanding that taxes be lowered more. Given the current deficit, this isn’t possible without literally eliminating not only a wide range of existing federal programs, but also ALL tax deductions, and that includes the cherished mortgage interest tax deduction, the earned income tax credit, credit for college and education expenses, and certainly various subsidies and business tax deductions.
All that isn’t going to happen, not in the current political climate of “I deserve it and someone else should pay for it.” Why not? Because it would destroy too many people. For example, although “only” about a quarter of U.S. homeowner mortgages are technically underwater [owing more than the house is worth], close to 50% are realistically underwater and unsalable in the current market because of the other additional costs required in selling a house and moving. If Congress were to remove the mortgage interest tax break, that would make the situation even worse, because the vast majority of homeowners would have even less income to make mortgage payments. Similar problems would arise with the elimination of the earned income credit, and others… and what politician is really going to have the nerve to eliminate deductions that will make things worse for their constituents… and the immediate economy, regardless of the possible long-term impact?
How did it come to this? That’s a chicken and egg question, but one thing is very clear. Americans, both rich and poor, have a lot more “things” than they did sixty years ago. The average new house being built is almost three times the size of those built in 1950, even while family size has declined since the 1960s. In 1950, the average family had one car; by 1995, the average family had more than two cars… again with a smaller number of people in the family. Almost every statistic – except for food consumed at home – dealing with personal consumption shows a significant real increase over the last 60 years – at all levels of income. Likewise, government programs have grown enormously since 1950. The one thing that hasn’t kept pace on a per capita or per family basis is the amount of federal tax revenue, and, as I’ve pointed out time and time again, while the taxes of the wealthiest individuals – and to a lesser degree those of the working poor – have decreased proportionately far more than those of other groups, even massive increases in taxes on the wealthy won’t close that revenue gap. And, remember, that “wealth” isn’t the same as income, so that under our current income tax system, income taxes can’t reach the huge amount of assets already held by the extraordinarily wealthy.
In essence, Americans as a whole have come to expect a combination of personal and government benefits greater that we are willing to pay for, and many of those increased personal benefits have come through deficit spending at the cost of more money in our pockets and less going to government. Even though most people will protest violently that this isn’t so… it is, and simple arithmetic proves it time after time.
So… whether I like Mitt Romney and his proposed policies or not, he was right about who’s paying for what [even if I disagree, which I do, with how much who should pay]… and especially who’s not.
But then, regardless of political party, no one likes embarrassing accurate facts.
When the lowest 60% only have 2% of the wealth, and the top 1% have 40%, it is unreasonable to expect everyone to pay the same rate. One can argue that the top 1% benefit disproportionally individually from government services, because the investments that generate their income generate money only due to economic activity enabled by government. Contract enforcement is a government function, as are roads, peace and security. If the wealthy really don’t want government, they’re free to move to Somalia. Whereas the mythical black single mother pumping out babies might conceivably make $50K a year, law and order and food stamps feeding their employees benefit Walmart and the Waltons much more, even though the Waltons are “worth” $100 billion.
Mitt Romney is a good example. He was effectively taxed at a 13% rate. It would have been less, had he claimed his entire charity deduction. He was taxed at that paltry rate for not working last year. But he gained his assets benefiting from government services. He worked for the financial “industry” which has been subsidized by an effective discount to the risk-rate: people expect that the government will save financial large players should they fail. This means they can take larger risks, reap the profits if their bets win, but socialise any losses. So, he borrowed at a discount, loaded up the companies he bought with debt (at a low rate), which he then cashed out as a “fee”.
In true capitalism, one doesn’t save banks. Iceland is an example. Their banks failed. Their bankers are in jail. It was tough, but their economy is rebounding.
In true democracies, corporations do not write laws, or pay for them to be passed. Ever wonder why fracking water is not subject to the usual water pollutant review by the EPA (under Bush Jr)? Ever wonder why regulations put into place to prevent another great depression were repealed under Clinton helping the 2008 crash?
There are always those that argue that companies pay taxes and their owners are doubly taxed. Although the US’ nominal corporate tax rate is higher than other countries’, in practice many corporations do not pay any taxes. They employ accountants to ensure depreciation, losses, etc essentially guarantee a zero tax rate. There is a simple solution to the double taxation “problem”. Tax legal fictions, not real people.
It is hard to argue that the deficit is due to the average citizen:
* Since the 1970s US productivity has increased but salaries have remained flat
* The difference has gone to the richest americans.
* Yet during this period the taxes on richest have fallen.
And while entitlements may be a problem in the future, they aren’t yet, and the US has a massive deficit today.
I agree to this extent: let losers lose, whether corporations or individuals. Guarantee NO outcomes. Let people learn to survive (and perhaps help each other…or not), or let them depart this mortal coil.
We’re subsidizing non-survival behavior anytime we subsidize anything. Pretty soon we’ll be a species of congenital losers…perfect sheep for the few sharp enough to still function as power brokers.
The US taxation system is deliberately broken, and has been for a very long time. Everyone knows it, and noone is willing to take the popularity hit to fix it.
Between various loopholes to support failing industries in marginal constituencies, the imbalance between federal, state and city taxation systems, and the general attitude of “I have the right to do as I please”, is it any wonder everyone else considers the US to be the backward stepchild of the world?
California is what, the eighth largest world economy? And essentially, it is bankrupt. The US as a whole has survived the economic turmoil of the last few years pretty well, primarily due to artificial subsidies from China keeping the dollar high and the yuan low. Take that away, and you’d be in worse shape than Greece!
I was under the impression that Romney was criticized not so much for commenting that 47% of the US pays no income tax, but for implying that all of them would support Obama, and that they all had a victim’s attitude and were uninterested in paying taxes and contributing to their country. I would point out that a number of such persons are almost certainly Republicans, Tea Party members, and other conservative Americans and probably will vote for Romney. Moreover, I take issue with his contentions concerning their attitude and contribution. Many people, like me, use, have used or will use Welfare and other aid programs as they are meant to be used- as a temporary help in times of trouble. I was on welfare over 20 years ago, while I was working on my PhD. I finished my degree, got off Welfare and have paid taxes and supported myself ever since. I hope never to have to need such help again – but am glad to know that it is there if I do.
Three government finance problems that I worry about are misalignment of citizen motivations, a welfare attitude, and absence of leadership integrity.
When an increasingly large group of citizens do not pay for benefits they are motivated to vote differenty than those who pay for a portion or more of what they receive. I worry for the day when the actual voting majority do not pay taxes. Those who can pay more tax should pay more tax, but everyone needs to pay something and feel the pain when taxes are increased.
I worked my way through undergraduate college and a combination of my wife’s teachers salary, part time work, and student loans put me through graduate studies. I am proud that I did not use welfare to put myself through college. I am sure we could have qualified if I had quit working. A medical student I was teaching recently said, “I feel justified using food stamps…” The justification was that he would pay far more taxes in the future. I told him to feel grateful, humbled, even embarassed but that he has no right to feel entitled or justified to another persons money. Unfortunately his attitude and rationalization is becoming the norm.
Finally, all citizens will have to pay more taxes. The system needs to be progressive to allow for a robust middle class. However, I do not trust Congress to use the money that I pay in taxes wisely or effectively. I expect them to continue to squander all the money they receive and to increase our debt. Of course this will make those who do pay taxes upset, resentful and increasingly unwilling to give more.
Sigh. This is why I should never read the blog of authors (and, by extension, actors) whose works I like. It leads to disappointment.
As one of your “left wing” now-not-so-much-a-fan-anymore reader (well, now former reader), I take exception at your characterization. Elizabeth hits the issue squarely on the head while you quickly take the typical right wing oversimplification. I know a number of people who fall into the 47%. They would LOVE to be able to find a job that pays them enough to actually have a tax obligation. But they can’t find a job that pays enough to push them into that category. Not everyone in the 47% suffers from this entitlement belief that you and all the right wing types claim. So no, it is NOT obvious. Mitt absolutely CAN reach the 47%. He can come up with a plan to heal the economy, increase jobs, and increase pay. Reducing the tax rate for rich people will clearly NOT do this. Mitt has done nothing in his campaigning to make me believe he has any plan to address employment. All he has done is proved to America time and time again that he only cares about the rich elite and that he’s out of touch with the middle and lower classes.
Oh, and how aircraft work.
You’ve totally missed my point. You’ve also missed my earlier points decrying hedge fund managers and others who pay lower tax rates than people working for a salary or hourly wages. I’m not a right-winger, but my point was NOT that Mitt cannot reach those people. My point was that the deficit has come from all elements in society, and that neither Romney nor Obama wants to deal with that, but Mitt was right on the point that, when people don’t pay federal income taxes, they’re getting more from government than they’re paying for. I’m not saying, and I never have, that some people don’t deserve help and that some cannot pay taxes. That doesn’t take away from the basic point — as a society as a whole we want more than we want to pay for. That’s not a right wing or left wing point of view. That is, as Bill Clinton out it, basic arithmetic.
You routinely say things that I disagree with, but you have it the nail on the head this time. Far too many people in this country are in the mindset that someone should do something for them. John says that people can’t find a job that pays enough for them to pay taxes. How about those people start their own business instead of whining about how much they are not making. I make less than $20k, I pay taxes every year, and always have. So maybe the takers in this society should channel the last good democratic president, and say ‘what can I do for my country, not what it can do for me’.
Jack, its virtually certain with that income that you currently fall under the 47% who don’t pay a net federal income tax once tax refunds are factored in like that statistic does. (You must have screwed up your taxes somewhere if this is not currently happening.) The 47% only applies if you don’t include state taxes nor social security and medicare among other things. In other words the statements was partially so offensive because it included people like you.
As alluded to, a key part of the problem with Romney’s statement is around 1/3 of the people in the category actually support him rather than Obama. The other huge problem is how Romney falsely characterized this entire group as simply being dependent on government and acting as victims rather than working to support themselves, while many of them temporarily are in that category while for instance students. (And this includes students who actually are working in many cases to pay for college.) It also skips the issue of how many of these people are retired seniors for example where its probably not reasonable to expect them to be net contributors tax wise anymore.
While you can happen to end up using Romney’s statement to get around to taking about the issue of too many people all wanting something for nothing today, his statement had all sorts of other problems with it which is primarily why he is receiving so much criticism for it.
Aaron, Screwed up my taxes? Tell that to the IRS. You need to come down from your ivory tower and actually work for a living. I dont mind paying my taxes, never have. What I mind are free loaders who are set on getting as much out of those around as they can. Not taking into account the fact the system has already been flushed, and we are swirling around the bowl watching all the pretty lights go by.
Taxes should be paid by everyone regardless of their position or class in society. No deductions. Same percent. It seems to me that the current state of taxes in America violates the equal protection clause of the constitution. Why should a rich man pay a higher percentage than me? He shouldn’t. and why should a poor mother pay no taxes at all? She should. If a person doesnt like their place in our society, then change it. Thats the beauty of system, or rather the way it is supposed to be.
Some Hard Truths imply Generalized falsehoods and lies.
Besides that…. No matter if the implications of facts of Mitt’s statement are true or false a president should never alienate a part of society like that. Let alone an implied 47% of his potential people. A President servers all citizens, any thing less is just unexceptionable.
-rehcra
Correct me if I am wrong but isn’t Mitt romney being subsidized by the Government in regards to tax programs that benefit the finance sector?
Mitt romney receives government handouts. Mitt romney cant talk himself into taking personal responsibility for his country without milking every opportunity.
Americans are either getting dumber, or really do not care and are using politics like they use sports/celebs etc.
Welcome to the age of the 24 hour conflict masturbaters.
Without inspecting Romney’s tax returns, I can’t say whether he’s receiving subsidies or handouts. He is definitely paying a lower tax rate than a great number of Americans whose income is considered “earned income,” because much of Romney’s income is taxed at the lower rate that is used for dividends and capital gains. A lower tax rate, however. is not a “subsidy,” not unless you want to consider lower tax rates for people who make lower incomes a subsidy as well. That doesn’t mean I think that the extremely wealthy shouldn’t pay a higher percentage of income in taxes. I do… but the devil is in the details of how that’s accomplished.
Jack, the problem is given the way the US tax system is currently set up, what you are claiming really should not be possible period unless you’re married and the wife has a significantly larger income. Once you factor in the standard deduction, and if you put anything in to a IRA or 401K so you could take the saver tax credit, you simply should be at a net zero income tax or less for the year. (As as business there are usually a bunch of other deductions you can throw in on top of these other factors.) I certainly have in fact earned that kind of money before earlier in my life prior to making more as I do now, and I certainly do work for a living.
Now the confusion may be that you are paying some business taxes and the like, but that would not take you out of the 47 percent statistic which Romney was talking about since its only including specifically federal income taxes paid.
The reality is your suggestion would be highly unreasonable if actually put in place, with poor families already on the edge literally put in a position of being pushed onto the streets and/or being unable to meet basic needs such as food and clothing if you implemented something like an outright flat tax to everyone. If you consistantly make that limited amount of money and don’t get why paying a higher rate might be a problem for many, I find that very odd and wonder about your specific circumstances. Certainly for a currently single mother with children, its simply not going to be possible for her to provide for them properly in many areas if her rate goes higher and her income from working is already really low. (It should be noted that the earned income tax credit was Republican supported in the first place to avoid a situation where women conclude they are better off staying on welfare than working an having to pay for daycare or the like.)
Its one thing to say a person can simply improve their financial position in life, but for many that’s far easier said than done and luck also plays a significant role in many case. There also is the argument with mounting economic inequality and current economic trends, there is a purpose in government evening things out slightly for the sake of general social order if nothing else.