By Kathryn Watson | Watchdog.org Virginia Bureau
WASHINGTON, D.C. — From the Occupy Wall Street movement’s denunciations of the wealthy to President Barack Obama’s more diplomatic demands for tax fairness, class-war rhetoric is back and maybe more compelling than at any time since the 1960s.
It’s easy to understand the resentment behind calls for tax fairness. College graduates are drowning in $1 trillion of student loan debt. Poverty rates have risen to the worst in half a century. Unemployment has topped 8 percent for three years.
Then there’s the anecdotal — misleading, perhaps, but powerful: So when you hear that Warren Buffet’s secretary pays more in taxes you wonder what’s wrong with the tax code — and how you can get her job.
But there’s a flip side of the income-tax discussion that doesn’t get much play from the White House, protestors or mainstream media: The top 1 percent of taxpayers forks over more in federal income taxes than the bottom 90 percent combined, while nearly half of American households — those consuming the most in government services — don’t pay a dime.
A new study by the Tax Foundation, a nonprofit research group in Washington, D.C., reveals that the group of “nonpayers” in America has doubled to record levels over the past two decades — from 21 percent in 1990 to 41 percent 20 years later. And while more and more Americans fall into the “nonpayer” category, thanks to mounting tax credits and deductions, the “rich” are picking up more and more of the tab.
The federal income tax system so favors the bottom half of Americans that the IRS each year doles out $105 billion in the form of credits to people who pay no income tax at all, the Tax Foundation found.
Is the dreaded IRS really Santa Claus in disguise?
“The IRS is now an extension of the welfare state,” Tax Foundation president Scott Hodge told his audience Friday inside the Rayburn House Office Building in Washington, D.C.
Mississippi has the largest percentage of nonpayers at 45 percent, while Alaska has the smallest at 21 percent. Click here to see where your state falls.
The profiles of America’s nonpayers and beneficiaries Hodge revealed in slide after colorful slide probably don’t match the images that first popped into your head.
A family of four making $45,000 a year — only five grand more than 2010 median household income — could easily be included in the nonpayer category, once you tack on standard deductions, personal exemptions and child tax credits, the Tax Foundation noted. In fact, the family could end up $280 better off than before they filed taxes at all.
That middle-class family would actually be making money from the federal income tax.
But what about the rich who are picking up the tab for America’s social services — the things like Medicaid, Medicare and Social Security that eat up close to two-thirds of the federal government’s budget?
They aren’t all Warren Buffets. The wealthiest rise and fall with the economy, and upswings in their income levels do no damage to — and seemingly do good for — lower-earning Americans, the Tax Foundation found.
Households earning $250,000-plus — the “rich” whom the president has vowed to tax more — are mostly married, parents, baby boomers, educated, homeowners and business owners.
And if you want to talk about getting your “fair share,” when it comes to government services, these rich aren’t getting what they pay for.
Top-earning taxpayers receive 41 cents in services for every dollar they pay the feds in taxes, according to Tax Foundation research.
In contrast, those in the middle of the tax spectrum get more back than they pay, about $1.15 for every dollar.
But it’s those on the lowest end of the tax spectrum who get the best deal by far: $10 in services from the feds for every dollar they pay in.
As the percentage of nonpayers in the country has risen over the past two decades, so has the country’s spending on transfer payments — Medicaid, Medicare and Social Security.
One factor in that rise? The Tax Foundation figures that, if you’re not investing your own hard-earned dollars into the federal government, you’ll eat up the services because you don’t value their worth. It’s a “no-skin-off-my-back” mentality.
“Potentially, you get this huge demand for government service,” William McBride, an economist with the Tax Foundation, said at Friday’s presentation.
And hand-in-hand with that huge demand for government services goes soaring government spending and debt, the Tax Foundation suggested.
For every one-percentage point increase in nonpayers, researchers found a $10.8 billion increase in transfer payments, and a three-quarters of one percent increase in debt as a percentage of GDP.
So, if the Tax Foundation’s correlations are correct, America’s nonpayers are not only getting far more than they pay for at the expense of paying Americans, but at the expense of the nation’s fiscal health as well.
Hodge left his audience with this question: “Which is more unfair — the fact that top 2 percent pays 51 percent of income taxes, or the fact that half of Americans pay no income taxes?”
The class-warfare lingo of late may be catchy. But the numbers kind of make you wonder why the “1 percent” isn’t out there protesting too.
Click here to see the Tax Foundation’s slideshow summary of the research.