It began as a retort and became a fear. For years, when liberals would accuse conservatives of cutting taxes for the rich, our main argument was that low marginal tax rates on high earners were good for the economy. But we would also respond that rich people actually pay a large share of all income taxes. Over time, many conservatives grew convinced that the true fairness issue raised by the tax code is that this share is too large — and, even more, grew alarmed by how many people were not paying income taxes.
That 47 percent of all tax filers have no income-tax liability is now one of the most widely known statistics on the right. (Actually, according to the Tax Policy Center, the figure was 47 percent in 2009 and will be 46 percent for this tax year, but 47 is the number that has lingered in the public debate.) Economist Michael Boskin, a veteran of Republican administrations, fretted in a recent Wall Street Journal op-ed that tax policy “can create a majority paying nothing and voting more spending at the expense of a taxpaying minority.” When he announced his presidential campaign, Texas governor Rick Perry said, “We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.” Michele Bachmann, also running for the Republican nomination, says she will reform taxes so that everyone pays some amount in income taxes.
Rep. Paul Ryan of Wisconsin echoes this concern. “We’re coming close to a tipping point in America where we might have a net majority of takers versus makers in society and that could become very dangerous if it sets in as a permanent condition,” he said in a recent speech to the Heritage Foundation.
This point of view has even inspired a bit of agitprop. In response to left-wing activists’ claim to represent the oppressed “99 percent” of Americans, some conservatives launched a website where people could post statements from “the 53 percent” who pay income taxes. Slogan: “Those of us who pay for those of you who whine about all of that . . . or that . . . or whatever.”
The argument these conservatives are making has two components. First, it is wrong as a matter of civic morality for some people — let alone large numbers of people — to contribute nothing to the support of the federal government. Second, this situation is politically dangerous because it means that, for a large number of voters, big government is, or appears to be, free. These voters will therefore support the expansion and oppose the retrenchment of government, voting themselves goodies at other people’s expense.
The good news is that these fears are overblown. The 47 percent figure does not mean we are near a tipping point. Most of the people included in that figure do make financial contributions to the federal government, and there is no reason to think that nonpayment of income taxes is turning millions of Americans liberal. The bad news is that worrying too much about this number will lead conservatives down an intellectual and political dead end.
According to the Tax Policy Center, provisions of the tax code that exempt subsistence levels of income from income taxes — the standard deduction, personal exemption, and dependent exemption — are the reason for about half of the tax filers who owe no income tax. Another large group of filers pays no income tax because its members are elderly and benefit from such features of the code as the non-taxation of some Social Security benefits. The tax credit for children and the earned-income tax credit, an effort to boost the pay of low-income workers, wipe out income-tax liability for other taxpayers. Those credits are “refundable,” meaning that beneficiaries can get money on top of paying no income tax. Other provisions of the code account for the rest of the 47 percent: education credits, the non-taxation of welfare payments, itemized deductions, and so on.