Published in The News Tribune, September 21, 2012
A colleague of mine bought a cup of coffee at the local coffee joint this week. A moment later, cup in hand, she left the shop only to return a minute later to pay for three more. She’d seen some contract workers outside cleaning up campus in anticipation of the pending arrival of our students. On the spot she somehow decided that these newcomers to campus would appreciate some coffee. After paying for their three cups, she informed them coffee would await them during their break, and then off she went to put in a day’s work.
Now I don’t know if Jeannie is among the 47 percent of Americans who don’t owe income taxes. But I do know that paying taxes is only one of many ways that citizens make valuable contributions to our society. We buy things, keeping others employed. We save, providing money so that others can borrow. We vote, we publicly deliberate issues, we give to charity, we work hard at our jobs. And sometimes we just set a good example that makes everyone else want to do the same.
It could be Mitt Romney’s comment that reduces good citizenship down to the amount paid in taxes was not a heartfelt one. But neither was it a slip of his tongue nor said during a private, unguarded moment. The spirit of his comment is one that he is and should be called out on.
But its substance should also be challenged. First, for some reason income taxes often get equated with all federal taxes even though they account for less than half of all federal government revenue. Other federal taxes — gas and alcohol taxes, payroll taxes, and corporate taxes – make up the rest. In the case of corporate taxes we all pay these through the prices corporations charge. These taxes collectively account for why low-income Americans still pay about five percent of their income to the U.S. Treasury.
Romney is right is stating that nearly half of us pay no income taxes. Two features of our laws explain this. First, your income is taxed only after you earn some threshold amount. The idea here is that people who are quite poor should not pay taxes. That so many Americans do not pay income taxes is a comment not on their laziness but rather on the significant percentage of citizens with very low income.
A second feature of tax law that explains why so many people don’t pay income taxes is the Earned Income Tax Credit (EITC). Inspired by Milton Friedman, proposed by President Nixon and enacted in 1975 by President Ford, the EITC provides tax breaks to low and middle class working families. The EITC is widely credited with making work pay and reducing poverty. Were it not for the EITC, today we’d have 25 percent more children in poverty than we already do. To help out struggling families, you’ll be hard pressed to find a better policy than the EITC. But it does mean that this policy shows up in some citizens’ low or often negative income tax bill.
Which brings me to one final reason why it doesn’t make sense to compare citizens based on their tax debt. Romney’s comments bring to mind a ledger of sorts, with taxes on the plus side and government handouts on the other. The balance between the two sides tells us whether on net we are a giver or a taker. If you pay no taxes, well, you must be in the red to the rest of us.
But as mentioned above, so many struggling families pay no taxes because government handouts take the form of tax breaks. Medicare and Social Security “handouts”, on the other hand, take the more traditional form of government checks written on recipients’ behalf. If we really wanted to point our finger at the group who is in the red to us, it is just about anyone over 65, and not low income or working class families.
Thinking about citizens in terms of their net contribution to society is not inherently misguided. But it absolutely is when we think in the narrow terms of government finance.
Ask anyone with a grandparent. Or any of those three workers on campus this week.