Tax Analysts Blog

Who Are the 43 Percent?

Posted on Sep 9, 2013

Mitt Romney’s presidential campaign never really recovered from his remarks about the 47 percent. At a private fundraiser, the Massachusetts Republican seemed to marginalize the supposed 47 percent of Americans who pay no income taxes, referring to them as those “who believe that the government has a responsibility to care for them.” Romney’s statement seemed to highlight his weakness as being wealthy and out of touch with those struggling. In fact, he is still in denial over the damage done to his campaign and trying to defend himself. The debate over those who pay no income taxes has important ramifications for the direction of federal tax policy, but it also highlights some common misperceptions about the source of federal revenues.

Romney’s 47 percent figure came from the Tax Policy Center. The center recently updated the number and broke down the 43 percent of Americans who do not pay federal income tax. While many of those who pay no income tax are low-income taxpayers or those with high medical expenses, a surprising number of very wealthy taxpayers fall into this category.

More than 70,000 households with $200,000 or more in income pay no federal income tax. IRS SOI division statistics reveal that they achieve this favorable tax treatment because of foreign tax credits and the exclusion of overseas income. Some pay no taxes at all, either to the United States or foreign governments. Those taxpayers rely heavily on tax-exempt bonds and interest income. The latter group is very small and, of course, is accepting a much lower rate of return in order to avoid tax liability.

Most of the 43 percent, however, have low household income. 75 percent of non-taxpaying units have incomes under $40,000. Almost 50 percent are under $20,000. These taxpayers rely on the earned income tax credit, child tax credits, and other deductions to zero out their small federal income tax liability.

And that makes conservatives, and even some progressives, irate. There is a prevailing sentiment that everyone should pay federal income taxes. Taxpayers who don’t pay income taxes aren’t likely to feel invested in federal economic policy or in the nation’s infrastructure, or so that line of reasoning goes. Sarah Palin has espoused this philosophy and helped make it part of the Tea Party’s mantra. That explains why Romney felt the need to call out the 47 percent to what he thought was a friendly audience, leading to his devastating gaffe.

But this type of thinking is simplistic and wrong. Even taxpayers who don’t pay income tax have skin in the game. Two-thirds of those who pay no income tax still owe payroll taxes, meaning they still have some vested interest in tax policy. Of the one-third who don't pay either income or payroll taxes, an overwhelming majority are senior citizens with incomes under $20,000 – a group that is heavily reliant on Social Security. As any politician will tell you, the elderly are hardly agnostic on federal financial issues and are strongly invested in budget and tax policy.

It is reasonable to argue that a tax system shouldn’t rely on a narrow base. When people have to pay for government benefits and infrastructure, they are much more likely to hold the state accountable. But Republicans and Romney are wrong to focus on the 47 (or 43) percent. Almost all of them pay taxes in one way or another. Most pay federal taxes in some form. The rest almost certainly pay state sales taxes. The United States has many problems, but a large, disinterested, dolist class of political agnostics isn’t one of them.

Read Comments (4)

Patrick R. SullivanSep 9, 2013

'The United States has many problems, but a large, disinterested, dolist class
of political agnostics isn’t one of them.'

Presumably you mean 'uninterested', but you still miss the point. It isn't that
the '47' (or 43) percenters are 'agnostic'. It's that their incentives are
distorted by the tax code. Their political choices and their opportunity costs,
are counter to the best long-term interests of the country, as well as to
themselves.

They then necessarily have to be treated like children--another group who only
consider short-term benefits to themselves.

travis rechSep 9, 2013

"Their political choices and their opportunity costs,
are counter to the best long-term interests of the country, as well as to
themselves.

They then necessarily have to be treated like children--another group who only
consider short-term benefits to themselves."

How paternalistic of you. Presumably, then, know what's best for the country
and for each individual citizen? Good to know your omniscience knows few
bounds.

patrick r. sullivanSep 10, 2013

I'm paternalistic for wanting to avoid treating adults as children? How odd.

Lennie SmithSep 13, 2013

Often, these discussions spiral into an me vs. them argument. it is similar to
Christmas time with children. One child gets a Xbox and the other child gets
ipod. The Xbox child feels they should have gotten a ipod, because the ipod is
mobile. The ipod child feels that they should have received an itunes card,
because the xbox will play games and allow the user to communicate.

Both parties are upset, but to the detriment of their parents and themselves.

Also, americans have become accustomed to framing problems inside of one
viewpoint, when , in fact, many variables are involved in the problem. History
and the Middle East will prove to you that weapons and low wealth
redistribution leads to civil unrest and instability.

It is time that we all become patriots and stop the tax argument. If you make a
lot of money, you pay a lot of tax. Get over it. Unless we want a Duke and Serf
type society, we have to keep a progressive system of tax.

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