Taxes: Say what you mean and mean what you say

I’m reminded as our political campaign rolls on toward Election Day that we must listen and read, speak and write carefully and critically. This week the focus has been on taxes, and it is important to make the distinction between taxes in general and income taxes in particular. Yes, Mitt Romney’s comments about the 47% were insulting and condescending. But bear in mind he said the 47% pay no income taxes. He did not say no taxes. With standard exemptions and deductions for dependents, mortgages, medical expenses, etc., many Americans pay no income tax (49%, according to one source; the Washington Post says 46%), but it is not a crime and it is not a sign that half the population is shirking its responsibilities. These people do pay sales and excise taxes, property taxes, etc. Even those living in abject poverty pay sales taxes in most states. Bottom line, most people in America pay taxes. So be aware when politicians or the media, intentionally or otherwise, conflate “income taxes” and “taxes” and make statements like “half of all Americans pay no taxes.”

A few days ago the Washington Post ran a much more elegant discussion of the subject that began:

At the heart of the debate over “the 47 percent” is an awful abuse of tax data.

This entire conversation is the result of a (largely successful) effort to redefine the debate over taxes from “how much in taxes do you pay” to “how much in federal income taxes do you pay?” This is good framing if you want to cut taxes on the rich. It’s bad framing if you want to have even a basic understanding of who pays how much in taxes.

I recommend it highly if you still don’t understand how the conversation is being manipulated.

9 thoughts on “Taxes: Say what you mean and mean what you say

  1. Right now, I pay “all of the above” taxes. When this started, I pulled out my stub to double-check income taxes. I was pretty sure, but after taking a $15k cut in pay back when I thought I had MS (cut back on hours), I wasn’t positive. Well, ayup. Pay a lot, too. More than someone on my salary should be paying. Just that one tax category limits what I can do or buy in life. Yet if people like Romney were to pay the same percentage that I’m a paying, it would not affect their lives at all.

    1. Too true, Michelle.

      And, Pied Type, here’s another article I read from Forbes that really drove it home for me:

      A bit sensational, but imagine trying to make ends meet on less than $9/hr.

      The funny thing is that I know a couple; one is a construction manager, the other is a loan broker; who paid no federal income taxes in 2010. They boasted about how they managed to avoid all their federal income taxes that year. They live in a house worth more than $800,000.00, drive vehicles less than five years old, and don’t worry about where their next meal will come from. And, yes, they are Republicans.

      My husband and I, at the time, both self-employed, paid more than $25,000.00 in taxes that year.

  2. As you noted, there are reasons why some people end up paying very little to no income tax. What doesn’t seem to appear in many of the discussions of this topic are why these people pay very little to no income tax. This should be combined with the question of “should they” be taxed like this. Does it benefit this country. This is a discussion worth having and clearly falls under the category of tax reform.

    Both sides have indicated a desire for tax reform. Tax reform itself is a topic that often appears. Ross Perot’s campaign focused a lot on tax reform. Yet we don’t appear to ever get close to actually reforming taxes simply because of the argument about how to do it. Our current arcane system does provide a scale of taxation that benefits some at the expense of others. Is this a bad thing? When looking at taxation, do we ask ourselves who needs tax relief and who doesn’t? I think we do, and I think this is where there are philosophical differences between the two parties. So they argue, and nothing ever gets done.

    Radical changes – major shifts in the way things work – appear to occur very rarely. Sometimes this isn’t a bad thing, but it does expose a dangerous problem with our system – the lack of flexibility. You see this happen in corporations when they get too large. Smaller companies are nimble. They can make quick changes. The bigger a corporate bureaucracy gets, the more time it takes to shift policy. Large corporations start to fragment into big “teams” that may be working to opposite ends. I look at Microsoft and Adobe as examples of this. Of course, the government isn’t a corporate entity, but there are many analogies. You can’t run the government like a corporation, but in many ways, the government runs like one on its own – a very large and overburdened global company with a slew of board members who all have their own ideas, and a CEO that has control over only a limited number of them and has to try to “convince” the others to fall in line. As we know, that “convincing” hasn’t been working too well. The CEO is stuck with board members that are completely opposed to making deals with him, and the company isn’t producing anything new. It’s relying on existing products in a changing world. Either the philosophy of the board members needs to change, or the board members need to be replaced, or a new CEO has to be appointed. Republicans would like a new CEO, and Democrats would like new board members.

    1. The basic reason Romney’s loathsome 47% pays no income tax is that they don’t earn enough. But he dare not say that because that puts him in the position of saying he wants to raise taxes on the poor and middle class. Tough to get those votes that way.

      Beats me how we’ll reform our tax code. It got the way it is because it gets tweaked a little bit every year and over the decades it’s become a Frankenstein. Which, I suppose, is exactly the way our government got the way it is.

  3. Ezra Klein does a pretty good job with the subject, but he still left me wondering about a couple of aspects of taxation.

    1. A lot of rich folks like Romney have no earned income at all because they’re living off of their investments. That means their only federal tax is capital gains tax which is currently 15%, but the charts don’t appear to reflect that. Now some try to make the case that even capital gains taxes are “unfair” because they see them as taxes on something that was previously taxed, i.e., the original investment principal, but I think this is bogus. If the whole world were made up of Romney’s (shudder) and lived on capital gains, who would fix the plumbing?
    2. Klein’s article claims the chart includes “corporate taxes” as well, but I can’t see how those could be included in each income group. How would they be allocated. Also, it seems obvious to me that corporate taxes are a very poor way to collect revenue because they are simply passed on to consumers as part of the cost of doing business. Because of that, everybody who buys anything is in effect paying corporate tax, and that tax is maximized percentage-wise for the person who spends all of her income!

  4. PS – I predict the tax code will never be reformed because the present Rube Goldberg system is the mother’s milk of politics. Despite all the bad-mouthing that goes on it is the give and take, the loopholes, the exemptions, the pork-barrel spending, the subsidies, that constitute a Congress person’s power and influence. No way are they ever giving that up. Just ask erstwhile presidential candidate Steve Forbes.

... and that's my two cents