The Purpose of a Tax


Taxes* serve two purposes: the first is to provide governments with revenue, and the second is to deter or regulate activity i.e. sin tax on alcohol or trade tariffs.

Notice, neither purpose’s main role is to serve as a catalyst toward economic growth like Republicans believe. Republicans are confident, just so sure, that if we lower taxes the economy will prosper. But understanding the purpose of taxes, and just basic tax history, there is little evidence to support the Republican model. Tax rates have been consistently decreasing for decades, yet the economy has still had its ups and downs. The point is economic growth is not solely determined by tax rates – it’s not that simple.

I think Democrats better understand the purpose of taxes. Democrats do not argue higher taxes lead to economic growth (because it is true at a certain point when taxes go too high they will deter economic activity). When liberals reference the higher Clinton era tax rates, they are referring to the strong economic growth that went on during that time. The significance being high tax rates did not deter economic activity. They did, however, serve the role of raising revenue, which led to 4 years of a balanced budget.

So Republicans are framing the debate around taxes incorrectly. It’s not; we need to lower taxes because that will lead to economic growth. Instead it’s at what rate should taxes be set in order to maximize revenue, but at the same time not deter economic growth.  So the tax rate should not be viewed as an economic starter, but only an economic deterrent.

Given our current tax code, it’s hard to argue that it is high rates that are hindering economic growth. Taxes were slightly higher in the 90’s and drastically higher in pervious decades, and in both cases economic growth was much greater. If taxes now are lower than during an era of greater economic prosperity then there is no reason to believe lowering them more will solve the problem. So the basis of the Republican argument, taxes are too high, is really an unfounded claim.

Now, this is not an argument that government should try to squeeze every penny out of taxpayers it can without hurting the economy. But given the country’s increasing deficits, under funded schools, crumbling infrastructure, growing numbers of people living in poverty, a disappearing middle-class, and a slew of other problems, more revenue is not inherently bad.

The larger point in all this is Republicans’ answer to every problem is to cut taxes. That’s obviously not the solution. Tax rates are historically low, and there’s no evidence that further reducing them would spur on economic growth. Instead we should set tax rates so they can serve their purpose of raising revenue without being a drag on the economy.

We need to look at other ideas to promote economic growth outside of just ‘cut taxes!’ This could be rebuilding our infrastructure, investing in new infrastructure like high-speed rails, investing in new alternative forms of energy, or creating policies that promote hiring here in America rather than overseas. Here is where the Democrats have an edge, the stimulus package that was passed, and The American Jobs Act (that was not passed) were filled with ideas to boost economic activity. They were ideas that went beyond cutting taxes for the rich in the hopes the wealth will trickle down. Although some may disagree, most economists concur that the stimulus did work, and the American Jobs Act would have reduced unemployment.  Economic growth will not come from padding the pockets of the wealthy, but from investments aimed at putting people back to work.

*To make things simple, taxes in this post refers to individual tax rates

The Greatest Country?


The Mitt Romney platform for foreign affairs is America does not apologize for being America – America is right and you are wrong. Why I think this is important is because it embodies a larger ideal of the Republican Party. Today’s Republican Party holds dearly the belief that America is the greatest country and can do no wrong, and because of that feeling they see no reason to make any changes. They offer no solutions to advance the status quo.

Climate change that is ruining our environment – it doesn’t exist. A growing population living in poverty with a vanishing safety net – people just need to work harder. Students riddled with debt from the increasing cost of college – just go to a cheaper school or ask your parents to help. Women’s rights systematically being rolled back – just say it’s an attack on religion. A middle-class disappearing – just continue a tax policy that benefits the wealthy. A healthcare system that simply cannot support itself – just cut benefits.

Instead of addressing these problems, Republicans just turn a blind eye, or make some excuse, and say this is greatest country in the world. America is the land of the free and the home of brave. America has freedom, it has Democracy.

Let’s not forget the land of the free and the home of the brave enslaved African-Americans for nearly a century. Let’s not forget our free nation made women and minorities second class citizens for decades. And let’s not forget our democratic country now faces income disparity that is leading to a rich and poor America.

I believe America is the greatest country in the world, but not because we have freedom here. There are plenty of countries who are free and have fully functioning democracies. But we are still better.

We are better because as a country, when faced with adversity, we didn’t brush off major problems and make excuses – we fought to make a change. People literally fought to end slavery.  People fought for civil liberties. Women have fought for equal rights. Today we see environmentalists fighting to save the earth. Occupy protestors are fighting for income equality. And we even saw the President fight to make healthcare a right and not a privilege.

America isn’t great because we are free, America is great because throughout our history we tackled problems in order to make every American better off. I don’t see that coming from the Republican Party today. I see the Republican Party in rut, unwilling to offer any new ideas or solutions. I see them as content, without any intention of truly making the country better off.  It is not enough to just say America is the greatest country in the world – action actually has to be taken – or America may not stay the greatest.

Paul Ryan and The Tea Party: A Not So Serious Bunch


Remember this picture…

Yes, this is the infamous Tea Partier who vehemently proclaimed government, and its wasteful and inefficient ways, needs to stay out of Medicare. Obviously, the statement is laughable since Medicare is run by the government (not to mention run more efficiently than private insurance).

It should have been at this time we realized the Tea Party was not a serious party. We should have realized they were a party of false assumptions, far-right idealistic plans, and absurd platforms.

Sadly, this realization did not happen, and the Tea Party was not only given legitimacy, but they were actually given positions of power. Now we have an extreme sect of the Republican Party that has no business being in Washington.

I disagree with Republicans, but I believe they create a nice balance with Democrats. The Tea Party on the other hand, has paralyzed Washington with an unrealistic, fantastical and detrimental set of demands.

They say they’re fiscally responsible, but to put it bluntly – they have no idea what they’re talking about. Part of their platform is to eliminate the national debt. First, our founders believed the country should have a national debt. Second,  Andrew Jackson actually paid off the national debt once before and it sent the country into a recession. Finally, a report was done by the Clinton administration that said paying off the national debt would have detrimental effects on the economy, both globally and domestically. The study concluded the country should carry a national debt.

They say they’re Taxed Enough Already, but in reality taxes are historically low. And I’m not just referring to the income tax. The capital gains rate is lower than it’s been since the 1930’s. And the corporate tax rate is lower than it was during the 40’s, 50’s and 60’s. I’m pretty sure business was good then.

They say they’re patriots – doing the work of the founders. Well, clearly they didn’t get the founder’s message about the national debt. Furthermore, the Tea Party constantly associates themselves with evangelicals. (I actually went to a Tea Party meeting that opened with this prayer, and I quote “Thank the Lord for the Romney/Ryan ticket.” Who knew God was rooting for the Republicans in 2012.)  One would think a group of patriots would listen to Thomas Jefferson who declared there to be a “wall of separation between church and state.” 

They are a delusional party with policies that are simply out of touch with reality. I think the nation is coming to the realization the Tea Party is not a serious party, but rather a well funded group of far-right-talking-heads who have a loud voice – and nothing more.

This brings me to a recent quote about Medicare, “We’re going to restore this program, and we’ll get these bureaucrats out of the way.”

Translation: Keep government out of my Medicare.

Who said this? It was not a fringe Tea Party leader or Fox News pundit, no, it was vice presidential nominee, Paul Ryan.

Just as this line should have hinted that the Tea Party was not a serious Party a couple of years ago, Paul Ryan saying it today should be a red flag. As much as the news and media wants Paul Ryan to be an intellectual conservative, he’s not.  He’s a lot like the Tea Party.

His plan is unrealistic and lacks necessary specifics like which loopholes he plans on closing in order to pay for his tax cuts. It’s not the plan of a fiscal  conservative. It’s a plan that sounds good to the base because it increases addresses the deficit and tackles entitlements. In reality, it does neither.

As Paul Ryan goes around promoting his agenda, remember, his plan is nothing more than idealistic ideas lacking any realistic backing. Just as the Tea Party is losing its influence, we the people need to stop giving Paul Ryan credibility.

Team Comeback Lacks Substance


The Beltway, along with media pundits from both sides welcomed the VP selection of Paul Ryan because they thought it was a signal that the Romney camp was prepared to shift their campaign to a more substantive one. Paul Ryan, known for his budget and economic vision, was thought to change the conversation from vicious attack ads to serious economic policy.

Well, that didn’t happen, and it’s not surprising. The reason: Contrary to what the media believes, Ryan is not a substantive guy. People think he has serious plans for the country, but in reality the only thing he has are vague claims that fire up the Republican base – “Smaller Government!” “Cut the debt!”  The only reason his plan has credibility in the Beltway is because those people are precisely the ones who gave him credibility in the first place. Paul Krugman lays out this argument  better than I can – here.

The people who believe Ryan really does add some substance to the debate are simply mistaken. Although he is viewed as a deficit hawk, his plan doesn’t balance the budget until 2040. And that’s assuming all his math works. By reducing the tax code to two brackets (25% and 10%) Ryan’s plan offers a huge tax break that is paid for by closing loopholes in the current tax code. As I have pointed out before, he has yet to mention what loopholes he plans on closing. So, it’s hard to take Ryan as a serious deficit hawk when his proposal gives no specifics as to how it’s going to reduce the deficit. Further, if history tells us anything, Ryan is not concerned about the debt or paying for tax cuts. He voted for 2 unfunded wars, he voted for the Bush tax cuts without paying for them, and voted to extend them again without any funding. So Ryan might have the perception of fiscally responsible, but there is little evidence to prove he actually is.

Ryan is a lot like his running mate, Mitt Romney. As we learn more about Romney’s plan, the plausibility of it seriously comes into question. Romney’s plan brings government spending down to 20 percent of GDP without touching Medicare or Social Security, as well as setting a floor on defense spending at 4 percent The only way this math works, as Ezra Klein pointed out, is to cut everything else by an average of 40 percent; meaning, “Medicaid, infrastructure, education, food safety, road safety, the postal service, basic research, foreign aid, housing subsidies, food stamps, the Census, Pell grants, the Patent and Trademark Office, the FDA” would all see substantial cuts. Romney neglects to mention this in his plan. Besides the fact his cuts are politically impossible, they would have devastating consequences for, well, everyone.

Both Romney and Ryan make big promises without the slightest mention as to how they plan to fulfill those promises. Both plans sound good to the base, but it’s entirely unclear whether Ryan and Romney can or even want to achieve them. These are not the plans from people with serious ideas about reducing deficits and shrinking government, but rather they are plans from people pandering to the extreme right of their base.

The Troubling Aspect of Romney’s VP Pick


When Congressman Paul Ryan of Wisconsin got the nod as Romney’s running mate the question became what does he bring to the ticket? VP’s are chosen for various reasons. They can fill in the Presidential candidate’s weak spots like Cheney did for Bush. They can add a nice contrast to the Presidential candidate like Biden did for Obama.  They can excite the base like Palin did for McCain. So what does Ryan do for Romney?

Well, Ryan doesn’t help with the healthcare debate. Romney has always struggled on this issue because he was the original architect behind the idea for ‘Obamacare.’  This prompted Rick Santorum to say Romney “would be the worst Republican in the country to put up against Obama.” Adding Ryan to the ticket may distract from that particular point, but not the healthcare debate in general. Ryan wrote the plan that “would change Medicare as we know it.”  His plan to replace Medicare with a voucher system that on average would cost seniors $6,400 more a year has received criticism not only from the left, but from senior citizens’ groups as well. So Ryan may take some heat off Romney’s record in Massachusetts, but he replaces it with a new wave of attacks.

Ryan also doesn’t help with the perception that Romney only cares about the wealthy. Ryan may not be an east-cost millionaire with multiples homes, Swiss bank accounts, and a dressage horse, but his proposals sure seem to help people like that.  The Ryan plan, like Romney’s plan, is filled with huge tax cuts for the wealthy that are somehow paid for by closing (yet to be specified) loopholes. Realistically, the only way to pay for those tax cuts is to close loopholes that benefit the middle and lower class like the home mortgage interest deduction and the earned income tax credit. His budget also cuts Medicaid (even more than Medicare) and other programs geared toward helping the less affluent. Whether you agree or disagree with Ryan’s plan, it’s hard to argue he is someone who represents the middle-class.

Another problem Romney has is his inability to seem, for lack of a better term, human. He is awkward on stage and in interviews, and just does not seem comfortable as a politician.  Ryan should help a little with this, as he is a career politician. But in reality, Ryan is more of a policy wonk than an everyday guy. He’s a technocrat that is good at explaining his position. So he may make Romney seem relatively more personable, but in no way will it be a big factor in the election.

In a lot of respects Ryan does very little for Romney. But Ryan does one thing for Romney that should frighten everyone.

The one thing I believe Ryan does for Romney is he will without a doubt sure up a base that was once skeptical of Romney. That’s troubling.  Ending Medicare, slashing Medicaid, and drastically reducing the size and scope of government are all concerns of mine; however, I am more concerned that those problems will be amplified due to Ryan’s unabashed support from the extreme right-wing of the Republican Party.

By choosing Ryan, Romney strengthens a base that is increasingly moving further and further to the right. Ryan strengthens a base that puts ideology before facts, preconceived notions before reality, and flawed beliefs before the truth. He strengthens a base that has created such a huge divide in this country that moderates no longer exist and compromise is a dirty word. Ryan will sure up a base whose policies if actually implemented will change American society for the worse. The idea of a second chance will no longer be embedded in American culture, but rather become analogous with socialism and a society dependent on government. Ryan will sure up a base that wants to cut any and all government programs, restrict access to healthcare, and send the economy into a tailspin; all in the name of what they consider fiscal responsibility. He gives credence to a base that believes freedom itself stems from lowering the national debt – no matter what that cost is to the average American citizen.

The consequence of giving those ideals a national platform and a credible voice is frightening in an election, which could be heavily determined by base turnout.

The Bush Tax Cuts Are Just Bad Policy


The upcoming election should help settle some of the debate in Washington, but one issue that will not be resolved November 6th, is what is known as the fiscal cliff. In December, when we bring in the New Year, it will be accompanied by sequestration (big spending cuts), and a spattering of tax increases.  One of the tax increases causing a lot of controversy is the expiration of the Bush tax cuts.

Republicans want to extend the cuts for everyone, while Democrats want to extend them for everyone except those making above $250,000.  This would return the top marginal tax rate to the Clinton era rate of 39 percent.  To those who read this blog often, it may not come as a surprise that I am in agreement with the Democrats on this issue, but for different reasons than you may think.

Republicans have called the Democrat’s idea just another form of class warfare. Democrats believe their plan works to even the playing field by ensuring everyone pay their fair share.

I think it’s much simpler than that – the Bush tax cuts are bad policy. Conservatives want to believe so badly that tax cuts for the rich are the solution to any and all economic problems. However, all those who claim lower taxes will increase growth, lower unemployment, and stabilize the debt are simply mistaken. The 1990’s and 2000’s provided a natural experiment on how tax rates affect the economy.

In 1993, when President Clinton raised taxes, the resulting years had much better GDP growth than the Bush years.

Similarly, the unemployment rate dropped every year after 1993. That trend was put to an end when Bush took office. Bush did see unemployment drop during his second term, but never to Clinton levels. Also, the decrease in unemployment, in part, was due to the housing bubble, and a massively over-leveraged financial system – 2 of the main drivers of this most current recession.

Finally, contrary to the belief that lower taxes will actually increase government revenue, Bush’s tenure was a mirror opposite of the Clinton years. While Clinton saw government debt to GDP decrease each year, Bush saw it rise. So much for tax cuts paying for themselves.

This is not to say higher taxes caused the good times of the 90’s, but clearly they were not a hindrance. The right’s insistence that lower taxes are the only path to recovery is misguided at best.  If tax cuts really are the solution then the economic climate of the 2000’s should have been much different. In other words, these graphs should look a lot different. The Bush tax cuts didn’t help with unemployment, didn’t boost growth, but did add substantially to the debt.

I know an economy is complex and not all these measures can be chalked up to tax rates. With that said, we can see that higher taxes are not necessarily detrimental, and lower taxes do not automatically equal growth. So all the big-idea-guys on the right have to come up with something else besides tax cuts.

Now, you might say, “if the Bush tax cuts are so bad then why not end them for all income levels?” Well, I believe that should be the goal. However, the Bush tax cuts have proved difficult to kill. Although the President pledged to let them expire in 2010, Republicans forced his hand and they were extended. The fact is ending all the Bush tax cuts is not feasible in the current political climate.

Ending them one step at a time provides the best chance to ending them in their entirety.  Also, let’s not forget, this recession is being driven by a lack of demand. Meaning increasing taxes on those who supply demand, middle-class families, may not be good policy for a struggling economy. Conversely, a tax increase on top earners, as we saw during the Clinton years, does not necessarily act as a drain to the economy.

The Bush tax cuts are bad policy.  They did not accomplish what they were supposed to and Congress should let them expire. Ending them on the high earners first makes ending them for everyone in the future more realistic, politically speaking. And ending them for the wealthy will not have the counterproductive economic impact that could arise from ending them on the middle-class.

Jobs Report – Good Not Great. And How to Make Next Month Better.


Friday’s jobs report was better than expected. The economy added 163,000 jobs, but unemployment ticked up to 8.3 percent. To be precise the unemployment figures changed very little, going from 8.22 to 8.25 percent. Although these are better numbers than we saw in May and June, they are still not cause for celebration.  163,000 jobs barely keeps up with population growth, and on average, only 151,000 new jobs are being added each month – at this pace it will take over a decade to return to pre-recession levels of employment. So, yes, better than expected, but not great.

And that’s really not all that surprising. Macro-economically speaking very little has changed in the past few months concerning economic policy. So it follows very little is going to change in the macro economy. Gridlock has paralyzed Washington into doing absolutely nothing. Republicans in the House are passing bills they know will not pass the Senate, and any bill with a chance to pass in the Senate is filibustered. Effectively, the President and Congress are writing legislation merely to make a political point. So, it’s not surprising we have seen weak growth these past couple of months, and it’s unrealistic to expect anything different when our lawmakers continue to play politics.

The shame in all this is much can be done to improve the country’s economic outlook.  I’m not asking for drastic steps, but rather simple, historically backed measures proven to lead to a strong recovery.

For one thing, the Fed has to start doing more. The Fed, headed by Chairman Ben Bernanke, has a dual mandate: promote stable prices (inflation/deflation control) and work toward maximum employment. Well, the Fed is keeping inflation under control (too under control), but it is not using all its tools to ensure maximum employment. One thing it could do is raise the target inflation rate. It currently is aiming at and achieving a 2 percent inflation rate. A modest increase in that number, not so great as to go against its mandate, could help with unemployment. I’m not asking for hyperinflation, but a target rate of 3-4 percent would help with debt relief as well as encourage investment. Both of which would help alleviate the high unemployment. This idea is not foreign to Mr. Bernanke.  As a professor at Princeton he echoed the same advice to Japan in the 90’s when they faced a similar crisis to ours. As Paul Krugman writes, “Chairman Bernanke should listen to Professor Bernanke.”

Of the available options to help the economy this should be the easiest to accomplish. The Federal Reserve is not supposed to be influenced by the politics of Washington – although this may not be the case anymore.

Moving onto things Congress should do… but will most likely not, even though many of these options have garnered bi-partisan support in the past.

Both parties are aware our infrastructure is in desperate need of repair – let’s fix that. Besides the fact infrastructure investment is smart productive government spending, and it helps keep us competitive with China, it also provides a boost to one of the weakest sectors of the economy – construction.


Congress also has to bring public sector employment back to historic trends. The chart below shows that if government payrolls had increased at the same rate as they did during the Bush years, there would be 1.7 million more people with a job.

I know conservatives want to cut government jobs because “government can’t create jobs!” Well, it can.  An economy operates by people spending dollars. It doesn’t matter if those dollars come from a government paycheck or a private sector paycheck – a dollar is a dollar. So in effect, a government job is no different from a private sector job. Increasing government payrolls will not only give people a paycheck, but it will boost demand, which in turn will help return the economy to normal.

Finally, Congress has to bring some certainty to the market.  I don’t always buy this argument because I think for the most part businesses know they have to pay taxes, and deal with regulations – that’s just part of doing business. With that said, settling the fiscal cliff issue would provide some extra certainty to the market. Now, the right takes this to mean we have to lower taxes, not necessarily though. If a business knows its taxes are going to be higher that still gives them certainty. It’s the not knowing that’s the problem.

Congress is going to have to compromise and just put an end to the fiscal cliff debate. There are so many things in the economy we can’t control; natural disasters, droughts, the Euro zone etc. we don’t need to shoot ourselves in the foot by creating uncertainty with something with which we do have control.

It’s doubtful any of this will get accomplished, which is disheartening. But knowing that this economy is fixable makes me optimistic. It is a matter of putting the right people in Washington – less than 100 days until the election.

Mitt’s Plan – Tax Cuts for Everyone! If You’re Rich


The election cycle thus far has been one of very little substance – on both sides. It has been attack ads, mixed with vague claims about how to solve the country’s economic woes. This trend only continued when Governor Romney released his plan for tax reform. Like the Ryan budget, it consisted of large tax cuts supposedly paid for by closing deductions and loopholes, and broadening the base.  It is also intended to be revenue neutral; however, Romney gave no specifics on how he plans to accomplish any of this. Since Romney is silent on the issue, the non-partisan Tax Policy Center filled in the details.

The findings of the study, generally speaking, are the tax cuts for the rich are so big that the only way to make the plan revenue neutral is to raise taxes on the middle and lower class. The graph below (from the Tax Policy Center report) shows the percent change in income after taxes for various income groups. Basically those making below $200,000 a year, the vast majority of Americans, will see an increase in taxes while those making above $200,000 will receive a tax break. Further, those making above $1,000,000 a year will see there after tax income rise by 4.1 percent. It is another reverse Robin Hood tax plan with which conservatives seem so enamored.

Team Romney has dismissed the report claiming liberal bias, even though every effort was made to be unbiased including a few generous assumptions. For example, the “Note” at the bottom of the graph explains that to be as progressive as possible all deductions and loopholes were closed entirely for the wealthiest first. However, in order for the plan to remain revenue neutral those deductions and loopholes had to be closed for lower-income people as well.

Although the study tried to make the plan as progressive as possible the result is still incredibly regressive. This is frightening because if Romney happens to win, and this plan goes into effect, there is no “as progressive as possible” guarantee. Meaning the cost of the massive tax cuts for the wealthy could be even more burdensome for the middle class than what is projected. This coupled with the right’s constant demand for spending cuts, which adversely hit low-income individuals, makes the Romney plan a serious threat to middle class growth while benefiting only people like Mitt Romney.

Hooray for fiscal responsibility.

What’s Really Holding Back the Economy?


If you ask Republicans, “What’s wrong with the economy?” or, “Why is there such little growth?” They all give a similar response. They say, “government is too big, it is spending too much.” They say, “the President is not creating a business-friendly environment – the President hates small businesses!”  According to Republicans, if only government would get out of the way, and let businesses do their thing then we would get the economic recovery America has been waiting for.

If this story were true, we would expect to see stagnate or declining business investment accompanied by skyrocketing government investment. This would illustrate an economy in which private sector growth is being hampered by too much government (the crowding out argument). The problem is, the ‘Obama hates small businesses and government is spending too much’ story does not line up with what is actually happening in the economy.

 

 

 

 

 

 

 

In fact, what’s happening is the exact opposite of what should be happening if the Republicans were correct. This graph shows non-residential investment, which can be understood as business investment, and government investment. Since President Obama’s policies have gone into effect, business investment has actually gone up, not down, as conservatives want us to believe. And government investment is actually at an all time low – not at socialist levels as our friends from the right continue to insist.

Now, I am not trying to say the private sector is back to normal and doing just fine, but the story that too much government is holding back this recovery just doesn’t align with what is actually going on. What’s actually going on suggests we need more government investment, not less.  The economy is struggling due to a decrease in government. This came mostly from sharp cuts to state and local governments, which in turn wiped out more than a million jobs.  It is precisely this “American style austerity” Republicans have been demanding that is hindering our economy, not government.

The proper response to the economy we face is not to blame government and decry any government expenditures, but to realize government can and should be used to help with this recovery.

3 Reasons the Claim “Half of Americans Don’t Pay any Income Tax” is Bogus


In a recent post, a comment was made by ‘Chris,’ who makes the claim, “nearly 50% of Americans… do not pay an income tax.” This line has become a standard talking point for right-wing politicians, pundits, and Fox News enthusiasts. It has been circulating for a couple of years now, in part because it is ‘true’ (yes, the claim is technically true, not denying that), but also because it plays into the conservative narrative that the downfall of this country is due to free loaders who are dependent on government.

The first problem with this line is many times it leads to people, sometimes ‘important’ people like Sean Hannity, claiming that half of Americans pay no taxes at all.  That is just patently untrue – simply red meat for his conservative base.

This leads to a second problem because implying a certain group of people do not pay any taxes only perpetrates the belief that those in poverty just want handouts and are not paying their fair share. This false belief turns a blind eye to the fact that there are more taxes than just the income tax. The income tax happens to be a very progressive tax. So it does not affect low-income people as much as high earners, but by no means does it follow that they do not pay their fair share.

 

 

 

 

 

 

This graph shows the effective tax rate paid by each income group. We see even those at the bottom still pay an effective tax rate of 17.4 percent. Yes, higher earners pay more (not by much), but the idea that low-income people are free loaders is simply not true. Further, if you take into consideration the past few decades where those in the top income bracket saw their income rise by close to 275 percent, while others only saw modest income growth begs the question as to who is really not paying their fair share.

Third, this claim also seems to purport those not paying income tax are either not working or somehow cheating the system. Both of which are untrue.  A large group of those not paying any income tax are the elderly. Their main source of income is Social Security, which is not taxed as income.  The other main reason 48 percent of people do not pay any income tax is because they are living in poverty and do not earn enough.  The various exemptions and deductions all people receive make their income tax rate zero.

These are not people who aren’t working or cheating the system. In fact, according to Lindsey Graham, ‘It’s really American to avoid (paying) taxes.” Full Disclosure: That quote is taken out of context. What he meant was that it is American for rich people to avoid taxes, but for the less fortunate, avoiding taxes is being a free loader.

That’s really the issue here; Republicans demonize the poor while putting the rich on a pedestal. They use this line as evidence the rich are already supporting the lower class through high taxes and taxing them more would be economic suicide. Republicans want us to believe that hiding and sheltering income to avoid taxes is patriotic, but when low-income households use standard deductions to decrease their tax burden they are leeches on society. It’s interesting we never hear about the 20,000 plus Americans who make over $200,000 a year and pay zero in income tax. That’s because those are the ‘job creators’ and we don’t attack them.

Paying taxes is about paying your fair share – both parties believe that. Republicans are just going after the wrong group of people.