For those of you that aren’t news junkies, Mitt Romney was caught on tape at a May 17 fundraiser proclaiming: “Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn’t connect. … My job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.” Here’s a look at these 47 percent of Americans and why his suggestion that they don’t take personal responsibility for their lives is complete nonsense.
1) The 47 percent are mostly employed or elderly: More than 80 percent of the 47 percent that don’t pay federal income tax are either elderly or are employed (and thus still pay the payroll tax). The remaining tax units overwhelmingly make less than $20,000 a year (which is below the federal poverty line for a family of four).
2) Today’s nontaxpayers (federal income tax, that is) are tomorrow’s or yesterday’s taxpayers. Contrary to Romney’s implication, these are not two distinct groups; rather, people go back and forth between the two groups over their lifetime. In fact, most of the 47 percent are either seniors who already paid federal income taxes over the course of their working life or young people who will do so once they hit their mid-20s. By the time they reach 50, there’s a nearly 80 percent chance they’ll be paying the federal income tax.
3) This is a feature—rather than a bug—of our tax system: There are two main reasons for why people find themselves without any federal income tax liability. First, the personal exemption and standard deduction structure (“standard income tax provisions,” or the red bars on the graph below, rather than tax expenditures) ensure that the tax code does not tax subsistence levels of income, i.e., income necessary to simply survive. Second, tax expenditures, which account for the remainder of households owing zero federal income tax liability, overwhelmingly exist to benefit the elderly and promote work and families. One interesting result is that these tax expenditures are much more important to the nontaxable filers in the middle– and lower-middle class than they are to the very low-income.
4) These tax expenditures mainly benefit the elderly and promote work: 44 percent of these tax expenditures are elderly tax benefits, such as a higher standard deduction (the elderly tend to have higher expenses, such as health care) and an exclusion of most Social Security benefits from taxation. Another 30 percent are work and family credits like the Earned Income Tax Credit and the Child Tax Credit, which successfully promote work. Conservatives such as economist Gary Becker have lauded these provisions for “increas[ing] the labor force participation and employment of people with low wages because they need to work in order to receive this credit.”
5) Nontaxable units are more heavily concentrated in the South: As the graph below shows, eight of the top 10 states with the highest concentrations of nontaxable units are located in the South, with New Mexico being adjacent in the Southwest. This has less to do with political ideology and more to do with the American South being one of the poorest regions in the country.
For more EPI analysis on this issue, read: