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Mitt Romney was recently embarrassed by a leaked video in which he wrote off the “47% of Americans who don’t pay taxes,” accusing them of feeling victimized and expecting the government to take care of them. NPR’s Planet Money says that it is actually just over 46% of Americans and it is primarily just the federal income tax that they do not pay and they don’t pay it because they receive tax credits or untaxed income like Social Security, Earned Income Tax Credits, child care tax credits and disability payments. The overwhelming majority of these people are poor or low income working people and retirees.
The biggest reason why so many people pay no federal income tax is the Earned Income Tax Credit (EITC), which was established in 1975 for low and moderate income working Americans, particularly those with children, as a way to offset social security taxes and to provide an incentive to work. The idea was that if you were working full time, you shouldn’t be starving, too. So the feds established this tax credit to put more money in the pockets of the working poor by taxing them less. The result was that many working poor no longer had any income tax liability. Thus, they paid no taxes.
Romney’s disparaging of these Americans, most of whom have worked hard all of their lives, belies his disdain for the rabble who he and his ilk have exploited to enrich themselves. Yet, in reality, the EITC has contributed to this exploitation, as it subsidizes low wages. The credit is only available to full time workers. So if you are willing to work for low wages, you will be rewarded with a tax credit. This helps ensure that there will always be a pool of workers willing to take on the lowest paying and most degrading, stressful and dangerous jobs out there and that bosses can continue to make millions of dollars per year by paying them so poorly for their toil.
Consequently, the EITC has received widespread support from both parties throughout most of its existence. The program was expanded under Reagan, Clinton, Bush, and again under Obama, with the American Recovery and Reinvestment Act. Clinton’s expansion of the program resulted in nearly 25% of Americans paying no federal income tax. Under George W. Bush, the percentage of Americans paying no federal income tax rose to 36% as a result of a child tax credit he added to the program. And as a result of high unemployment and temporary tax breaks, the number of Americans paying no federal income taxes under the Obama administration has risen to nearly 50% of all American households, according to NPR’s Planet Money.
So what’s wrong with this?
From Romney’s perspective, the beneficiaries are just a bunch of crybabies and self-entitled brats who will never vote for him anyway or do anything to end their dependency on government aid. From the perspective of anti-Big Government activists, like Romney, the only role of government is to provide subsidies and tax benefits to the wealthy and their businesses and provide military and police services to protect their property and investments. Any government spending that provides assistance to the rest of us is wasteful and irresponsible.
While this is not true (the EITC actually benefits the wealthy by encouraging them to continue paying poverty wages), this rationale is consistent with their never ending quest to lower taxes for themselves, something that requires a concomitant reduction in government services (for the majority of Americans, but not themselves).
One problem with the EITC is that if 50% of Americans aren’t paying any federal income taxes, the middle class is forced to cover the difference, leaving the rich effectively off the hook. Most of the wealthy do pay some income tax. However, they pay a far smaller percentage of their income than do middle class wage earners, since the majority of their income comes from capital gains, which are taxed at a much lower rate than regular income. And some wealthy Americans in fact pay little or no income taxes. (For the years he actually provided data, Mitt Romney paid an effective federal income tax rate of around 15% on all income, far less than what middle class people pay. This is because the bulk of his income was capital gains and because of all the extra deductions available to wealthy investors and businessmen that are unavailable to the rest of us). Thus, this system allows the wealthy to retain a greater percentage of their income than middle and lower class wage earners, further enriching them and increasing the wealth gap.
As for the beneficiaries of the EITC, it has not ended (nor can it end) poverty. Rather, it encourages it by subsidizing low wages. This is not to say it should be abolished—it does provide some relief for low income wage earners. However, everyone should have the basics for survival, including sufficient food, housing, healthcare, leisure time, as well as access to the good things in life. The primary reason why we do not all have these things is that we are dependent on the wealthy to provide us with jobs and decent wages and they are dependent on our low wages for their profits and wealth. If we do not work, we cannot put food on the table. Thus, we have no choice but to continue selling our labor to them for whatever price we can get (a price that has been diminishing yearly since the 1970s when adjusted for inflation).
Until wage slavery itself is abolished, wages will continue to be the biggest influence on living conditions. Therefore, rather than simply giving a tax credit to the poor that lets the bosses off the hook and that encourages low wage work, the entire wage-based system must be ended and the quality of life needs to be unlinked from the type of work we do.
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