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By Eric Boehm | Watchdog.org
Eric Boehm
HARRISBURG — If any good can come of Mitt Romney’s dismissive comments about the 47 percent of Americans who receive government handouts of one form or another, perhaps it is this: a serious discussion about the American tax code is long overdue.
In the middle of a contentious presidential campaign, it is unlikely that we will get the detailed discussion the matter requires, particularly after Romney approached the issue with all the surgical nuance of Jason Voorhees chasing down co-eds at Camp Crystal Lake.
But at the most basic level, the man has a point.
There are 49 percent of Americans who, according to the IRS, paid no net income taxes last year. Meanwhile, the top 1 percent of taxpayers paid more than the bottom 90 percent combined.
More income taxes come from top earners than any other group. Source: The Tax Foundation
And — as the former governor of Massachusetts “inartfully” reminded us in the hidden camera footage released this week by Mother Jones — there are 47 percent of Americans who receive a check of one kind or another from the federal government.
But where Romney goes wrong is with his assumption that President Obama will enjoy that group’s full support — as if Democrats are the party of the government handout while Republicans can only get votes from those not on the government dole.
The truth is, both parties have a long track record of advancing government dependency.
Sure, there are record numbers of people — more than 44 million — receiving food stamps, a program that cost more than $75 million last year. And just Monday, the Social Security Administration released new data showing that 8.7 million Americans are receiving federal disability insurance payments, the highest in history.
But in America, you can be in the 1 percent and the 47 percent at the same time.
That’s the magic of corporate welfare.
The federal departments of Agriculture, Commerce, Energy and Housing and Urban Development hand out more than $100 billion in subsidies to businesses during fiscal year 2011-12, according to a report from the Cato Institute, a libertarian think tank based in Washington, D.C.
By the way, the federal government ran a $1 trillion deficit that same year, so it’s not as if the treasury had money to burn.
Tad DeHaven, author of the Cato study, points out that the majority of farm subsidies go to large, corporate farms — despite the fact that Republicans frequently tout farm subsidies as being necessary support for small family farms that would be driven out of business without government help.
In 2010, the average income of farm households was $84,400 — or 25 percent higher than the $67,530 average of all U.S. households, according to DeHaven’s research.
Is there a difference between a direct handout like food stamps and a subsidy that helps keep people in business and employing others? Absolutely, but if we’re going to talk about groups of people making a living off the government’s redistribution of wealth, I’m including both.
It gets worse. All that spending accounts for only half of the redistribution of wealth that takes place through the America’s tax code.
The other half, the unseen half, takes the form of tax credits that allow many middle- and lower-income households to actually collect money through the tax system when they are paying nothing to the IRS.
When you add it all up, the American tax system is the most progressive among all western nations, according to the Organization for Economic Cooperation and Development, an international economic association of 34 nations.
When you add it all up, those at the bottom of the scale get about $10 in government services for every dollar paid in taxes, while those in the top tax bracket only get about 41-cents on every dollar paid.
But when we think of redistributing wealth, we tend to only think of things like food stamps and welfare — exactly the types of “entitlements” that Romney was awkwardly targeting in his remarks to Republican fundraisers back in May.
In other words, we assume most redistribution takes place on the spending side of the government ledger.
Not so, says William McBride, chief economist with The Tax Foundation, a Washington, D.C., policy center that advocates for a broad-based and flatter tax code.
According to McBride, nearly half of the government’s redistribution of wealth takes place on the revenue side of the ledger, thanks in no small part to some tax credits that are what the IRS calls “refundable,” meaning they allow individuals and families to collect money from the revenue even after they have already reduced their tax bill to zero.
He said the expansion of tax credit programs has been a bipartisan effort that has picked up speed in recent years,
President George W. Bush spent billions on ethanol subsidies and doubled the refundable child tax credit that hands out $100 million each year just for having children — something humans are preprogrammed to do without the government incentivizing it.
Obama expanded the Earned Income Tax Credit — another refundable tax credit that drains about $100 million from the treasury each year in order to benefit those making less than $50,000 — and pushed government investments in energy that led to the loss of $500 million in taxpayer dollars to Solyndra LLC.
“The end result is that we have deficit spending and we are having our credit-rating downgraded,” McBride concludes.
The root of the problems with the American tax code is not government-by-Democrats and the solution is not government-by-Republicans.
Both sides must be willing to give up their favorite giveaways.
Contact Boehm at Eric@PAIndependent.com or @EricBoehm87 on Twitter
