Friday, August 26, 2011

Brains! (Updated)

I really should not be having to write this post.  And yet Rick Perry leaves me no choice (I suspect that the governor of Texas will be taking up far too much of my time should he actually receive the Republican nomination).  Time for an actual quote from Rick Perry's speech announcing his candidacy for the 2012 Republican nomination:  "We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax."

This is a perfect example of what some bloggers have come to call a "zombie lie:" a lie or half-truth that continues to be repeated ad nauseum no matter how many times fact checkers attempt to shoot it down (like all zombies, these lies cannot be killed).

Perry is certainly not the first conservative figure to harp on this point.  Fox News, the editorial page of the Wall Street Journal, the Tax Foundation and quite a few conservative politicians have been complaining about this for a while.  The number of households that pay no income tax is dutifully trotted out, and the Randian conclusion that we're all supposed to draw from the statistic is obvious: the rich carry all the burdens in our society, while those at the lower end of the income distribution are nothing but lazy freeloaders who don't even pay anything to support the vast federal leviathan.
Like many political talking points this one does contain a kernel of truth: in 2009, somewhere between 47 and 51 percent of households did not owe any federal income tax.  However, the actual meaning of this statistic is not as simple as people like Governor Perry might like to think.  To put it plainly (via Howard Gleckman):
Let me explain—repeat actually—what this means: About half of taxpayers paid no federal income tax last year. It does not mean they paid no tax at all. Many shelled out  Social Security and Medicare payroll taxes. In fact, only 14 percent of Americans didn’t pay either income or payroll taxes. Some paid property taxes and, it is fair to say, just about all of them paid sales taxes of one kind or another. So to say they pay no taxes is flat wrong.
Aside from what the statistic actually means, it's also worth considering the following: who are the people who pay no federal income taxes?  What is their economic status?  Gleckman continues
(emphasis mine):
So who are these folks who pay no federal income taxes? Mostly, they are people who don’t make very much money. Many are elderly: Think a widow living only on Social Security benefits. Others are parents earning less than $20,000. Only about 5 percent are non-elderly households making more than $20,000. 
Roberton Williams also calls our attention to these issues, and gives a fairly comprehensive (if dizzying) statistical breakdown.

For a truly comprehensive summary of all the issues raised by the fact that somewhere around half of all US households paid no federal income tax in 2009, here's the Center on Budget and Policy Priorities (I recommend reading the whole post):
A recent finding by Congress’ Joint Committee on Taxation that 51 percent of households owed no federal income tax in 2009 is being used to advance the argument that low- and moderate-income families do not pay sufficient taxes. Apart from the fact that most of those who make this argument also call for maintaining or increasing all of the tax cuts of recent years for people at the top of the income scale, the 51 percent figure, its significance, and its policy implications are widely misunderstood...
The notion that “half of Americans don’t pay taxes” not only overstates the share of households that do not pay federal income taxes in a typical year. It also ignores the other taxes people pay, including federal payroll taxes and state and local taxes.
Policymakers, pundits, and others often overlook this point. At a hearing last month, Senator Charles Grassley said, “According to the Joint Committee on Taxation, 49 percent of households are paying 100 percent of taxes coming in to the federal government.” At the same hearing, Cato Institute Senior Fellow Alan Reynolds asserted, “Poor people don’t pay taxes in this country.” Last April, referring to a Tax Policy Center estimate of households with no federal income tax liability in 2009, Fox Business host Stuart Varney said on Fox and Friends, “Yes, 47 percent of households pay not a single dime in taxes.”
None of these assertions are correct. As the Tax Policy Center’s Howard Gleckman noted regarding TPC’s estimate that 47 percent of Americans owed no federal income tax in 2009, “rarely has a bit of data been so misunderstood, or so misused.”
Of course, if we wanted to talk about some of the real injustices in the tax system, maybe we could raise the issue of the carried interest exemption, which allows hedge fund managers to have most of their income taxed as capital gains (at a rate of 15%).  And as someone who has always rented my home since I graduated college, I have a bone to pick with the mortgage interest deduction.  But apparently, we're incapable of having these conversations in the contemporary US: it's just so much easier to pick on the poorest and most vulnerable members of society.

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