Economix Blog: Who Pays and Who Takes

Comments made by Mitt Romney at a private campaign fund-raiser about the nearly half of Americans who have no income tax liability have heated up a debate over who pays and who takes from the federal government.

Budget experts argue that virtually all Americans – rich and poor – pay into the government revenue system. And most Americans – rich and poor – at some point in their lives receive a form of government benefit.

Only about 8 percent of American households do not pay income or federal payroll taxes, once you discount older people. Most of those households are very poor, earning less than $20,000 a year, according to a study by the nonpartisan Tax Policy Center, which initially derived the 47 percent number Mr. Romney cited. (In 2011, it was actually 46 percent.)

Moreover, almost no families fail to pay taxes of any kind, given the ubiquity of property taxes, sales taxes, sin taxes, state and local levies and other government revenue sources.

A report by the Hamilton Project, a research group within the Brookings Institution, also notes that demographics matter when talking about who pays taxes. In any given year, millions of households will not be liable for federal income taxes. But many of those households are young or old – students or retirees. During their prime working years, the people in those households will almost certainly pay federal income taxes.

Moreover, among those families in their prime working years, many will see their federal income tax liability wiped out by credits for children and child care, including the earned-income tax credit. But once those children grow up, or the family’s income rises, the tax liability reliably returns.

Finally, the report notes that the recession has skewed these figures. There are about 12.5 million Americans out of work, and millions more who are underemployed or who have dropped out of the labor force. Reductions in income make it easier for the credits and subsidies in the tax code to erase a given family’s income tax liability.

Then, there’s the flip side of the coin: If we’re all paying in, who is getting the payout?

Census data shows that about half of the population lives in a household where at least one member is receiving a government benefit. Many households receive more than one.

As of the second quarter of 2011, 34 million households were receiving Medicare, 38 million Social Security, 15 million food stamps and 23 million Medicaid, for instance.

There are a variety of reasons. The number of Americans relying on the safety net surged during the recession and the sluggish recovery. Unemployment for many and stagnant wages for many more translate into increased need. A person’s age matters as well. Older people tend to draw government benefits like Medicare and Social Security. Increasingly, as my colleagues Binyamin Appelbaum and Robert Gebeloff wrote this year, those benefits go to the middle class, not the poor.

Article source: http://economix.blogs.nytimes.com/2012/09/18/who-pays-and-who-takes/?partner=rss&emc=rss