For weeks, Mitt Romney's campaign has struggled to explain the candidate's refusal to release concrete details about his proposed tax reforms or budget cuts. On Monday, however, Romney managed to escape from the continuing attacks over his economic policy; unfortunately, he did so by unleashing a potentially more damaging firestorm over his attack on Americans who don't pay federal income tax.
In May, Romney attended a fundraiser hosted by Marc J. Leder, a Florida-based private equity manager. At the party, which was secretly videotaped, the former governor explained the opposition that he faces among the voting public:
There are 47% of the people who will vote for the president no matter what. All right, there are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement ... And they will vote for this president no matter what ... These are people who pay no income tax ... My job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives.
The fabled 47% who don't pay income taxes are a favorite talking point for many conservative pundits and politicians, who often use them as evidence that America's expenses are paid by a relatively small portion of the populace, while the rest -- in Romney's words -- don't "take personal responsibility" for themselves.
What gets lost in the discussion is a real consideration of who these people actually are, how and where they live, and why they are exempt from that particular tax. The answers to these questions help explain a large part of the disconnect between the Democrats and the Republicans -- and the ideological differences underlying the current presidential campaign.
Who Are the 47%?
According to the nonpartisan Tax Policy Center, 53.6% of Americans pay a portion of their income in federal income taxes, and 46.4% don't. Of those who don't, 61% (28.3% of the population) pay payroll taxes, such as Social Security and Medicare, but have enough deductions and tax credits that their federal income tax liability has shrunk to zero. In other words, 81.9% of the population is gainfully employed and sends some measure of their income to the federal government.
As for the rest, 10.3% of the population -- 22% of non-income tax payers -- are elderly and are likely unemployed, i.e., retired. A further 6.9% are non-elderly but have incomes below $20,000, which in most cases puts them below the poverty line.
For that matter, it's not as if the rest of the 47% -- or, actually, 46% -- are doing especially well. Nearly 90% of the group consists of households making less than $50,000 per year, and 80% make less than $30,000. The remainder is mostly composed of higher-income households that benefit from significant tax credits for children and education.
This isn't to say that everyone who doesn't pay taxes is struggling. About 162,000 people among the top 10% of earners have found ways to avoid paying any federal income tax. This includes approximately 3,000 people in the top 0.1%, a group that makes $2,178,886 per year or more. A large part of their low tax rate, The New York Times'Bruce Bartlett suggested, lies in the fact that many -- like Romney -- derive most of their income from capital gains, which are only taxed at 15%. To further cut their liability, many are able to offset their taxes because of losses that they took in previous years. Alternately, some invest in tax-free municipal bonds or take advantage of a slew of other tax loopholes.
Why Do the 47% Get Such a Great Deal?
Regardless of whether or not all the accusations leveled at the 47% are true, it seems strange that so many households get such a big break on their federal income taxes that what they owe to Washington falls to zero. It's worth noting, though, that even this "untaxed" segment of the country isn't getting a free ride.
To begin with, when it comes to state taxes, every state in the union puts a larger burden on the poor than on the rich. Even states that don't charge income tax, like Washington, for example, place a large burden on their poor citizens, as they tend to make up for the lack of income taxes with steep sales and excise taxes -- regressive levies that fall especially hard on the poor.
Ultimately, the combination of state and federal taxes evens out: When Citizens for Tax Justice, a nonprofit advocacy group, analyzed the total tax burden on each income level in the country, they discovered that the percentage of total wages that each group gets is almost equal to the percentage of total tax revenue that they contribute. In other words, the wealthiest Americans pay most of the country's taxes, but also get most of its income.
This shared burden is particularly important when one considers how the 47% managed to avoid their taxes in the first place. The answer is, to a large extent, Republican tax cuts under Ronald Reagan and George W. Bush's presidency.
As Ezra Klein explains in The Washington Post, many tax cuts for the poor were enacted to make tax cuts for the rich "more politically palatable." Certainly, the tax breaks passed into law in Reagan's second term and Bush's tenure were accompanied by big jumps in the number of households that were exempted from paying taxes. In Reagan's last few years in office, the percentage of households not paying taxes jumped by more than 10%. Under Bush, it increased by more than 25%. Under the circumstances, it's ironic that the Republican candidate for president is now so quick to demonize a group that his predecessors so massively expanded.
Where Do the 47% Live?
The fact that Romney's party largely created the 47% isn't the only irony in his attacks. Perhaps more striking is the fact that an outsized percentage of the 47% live in "red states." Of the 10 states with the highest percentage of income tax nonpayers, only one -- New Mexico -- is leaning toward Obama right now. Meanwhile, of the 10 states with the lowest percentage of income tax nonpayers, only two -- North Dakota and Wyoming -- skew right.
And therein lies perhaps the strangest aspect of Romney's complaint. Not only does he not seem to understand the group that he's discussing or the way that it was created, but his final statement, that "these are people who pay no income tax ... My job is not to worry about those people," directly contradicts the electoral map. The choir that he's preaching to actually contains a large percentage of the very people that he just wrote off.