Tax Roundup, September 18, 2012: 47% frenzy! And New Jersey tries to rival Iowa.

September 18th, 2012 by Joe Kristan

Do 47% of taxpayers really pay no federal taxes? Close enough for government work.

Mitt Romney’s “Secret Tape” has stirred up talk about the “47%.”   Let’s look at a newly-issued table from the center-left Tax Policy Center for 2012 figures:

 

The lowest 20% would be at zero without counting their share of the corporate tax burden, borne in the form of lost investment income and wages.  The next 20% get to positive territory on the basis of payroll taxes, but I think Robert D. Flach gets this right:

In my opinion, the FICA tax is not a tax.  It is a contribution to a retirement plan (Social Security) and a payment for future health insurance (Medicare). 
Payments of Social Security “tax” allow the individual to collect a pension at retirement, and payments of Medicare “tax” allow the individual to receive extensive health care coverage at a very cheap rate (less than $100 per month) at age 65.

Of course, both Medicare and Social Security are actuarially insolvent, so these taxes don’t even cover their own costs.  The shortfall falls on those who actually pay a positive income tax.  So while this table doesn’t tell us exactly where the cut-off is, 47% can’t be too far off, with the only debate being over counting the payroll taxes that are already inadequate for their purposes.

Focusing only on income taxes also ignores benefits.  When welfare benefits and subsidies are taken into account, the 47% number Mitt Romney used seems low.   2004 figures from The Heritage Foundation showed that the bottom 60% of households receive more in benefis than they pay in taxes.   I will post more current figures if I find them, but I suspect that this “dependency ratio” has only worsened since 2004.

So while Mitt Romney’s “secret tape” statements might be politically awkward, it’s only because they are pretty much true.  The cost of government has shifted more and more to “the rich.”

This can’t continue forever because the math doesn’t work.  The rich guy isn’t buying because he can’t.

Related coverage:

Janet Novack, Memo To Mitt Romney: The 47% Pay Taxes Too

Kay Bell,  47 percent don’t pay federal income taxes, but do hand over payroll, other taxes

Tax Policy Center, Who doesn’t pay federal taxes

Robert D. Flach,  THE AMERICAN TAX NON-PAYER

Ramesh Ponnuri, Makers and Takers

Reason.com:  Will Americans Think They’re Romney’s “47 Percent”? Or One of the “53 Percent”?Romney’s 47 Percent Line Is a Common GOP Trope, and it’s Wrong*Secret Romney Tape Means We Can Finally Stop Talking About Obama’s Failed Foreign & Domestic Policy!Forget Romney: Should We Be Concerned That 49 Percent of Households Get Government Money?

Update: the TaxProf rounds up the frenzy.


CRS: Nothing Affects Economic Growth (William McBride):

A study by the Congressional Research Service (CRS) is getting a lot of attention, because it finds that tax cuts are not associated with economic growth.   Although less reported, the study also finds nothing is associated with economic growth, including all the standard factors such as education, population growth, and government spending. 

So close the schools, stop spending money, and raise taxes to 100%!

 

He probably wants to get his sentence out of the way so he can get on with his life.  When he’s 109.  Wasendorf kept in jail after court appearance  (Des Moines Register).  The 64 year-old, who has pleaded guilty to looting the Peregrine Financial Group, can expect to serve at least 90 percent of his expected 50-year sentence.

 

David Brunori,  Cowardly New Jersey Cronyism:

The not so courageous New Jersey’s Economic Development Authority approved a $40 million tax credit for Honeywell International to keep it from moving its headquarters to Pennsylvania.  Then the authority not so courageously approved a $40 million Grow New Jersey tax credit for Dotcom Distribution, an e-commerce warehousing and fulfillment company, so that it can build a facility and not move to Pennsylvania. Then the authority not so courageously approved a $50 million tax credit for developers to build a supermarket in Camden!  Where is the outrage? Where are the political leaders who have the courage to say that this is the worst kind of economic policy?

Not in Iowa, for sure.

 

TaxProf,  CRS: Corporate Tax Rate Could Drop to 29.4% in Revenue-Neutral Tax Reform.   I think the current  35% rate could go significantly lower than 29.5% if they really tried, without lowering revenues.  Of course, they won’t really try.

 

Russ Fox,  Is the IRS Time-Barred From Imposing a Penalty on a Frivolous Amended Return?  Short answer: no.

Jack Townsend,  Credit Suisse Continues Ratting on It Own and Expects Deposit Outflow.  Yes, that will do it.

Paul Neiffer,  Mistakes to Avoid in Lifetime Giving – Final

Timing is everything: capital investments for the last quarter of 2012. My new post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

News you can use:  The Tax Court Doesn’t Believe That You’re Not a Person (Anthony Nitti)

 

 

 

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