The New Republican Dream: Raising Taxes... On The Poor

John Amato was so ahead of his time to call his blog "Crooks and Liars." How can you cover conservatism without conjuring that up. Lately, astounded by Romney's unfettered alacrity at it, we've all had the "liars" part front and center. Last week Tim Noah delved into one of the GOP's biggest lies in a post at the New Republic, Lucky Duckies Revisited. It goes beyond just rehashing the old conservative Big Lie about welfare queens in Caddies. "A growing article of faith among conservative Republicans," he writes, "is that poor people in America don't pay enough in taxes." Perhaps you had an especially lame brother-in-law who listens to a lot of Fox or Hate Talk Radio for Easter Dinner yesterday and heard the phrase "broaden the tax base?" That's the cause that appeals to people's moron brothers-in-law who spend too much time in their cars commuting or too much time in front of the TV.

The general idea of raising taxes on the poor is that if people at the bottom of the income distribution get too used to thinking of government as something that gives them benefits and never, ever requires that they pay taxes, then they'll think that government comes free and they will demand more and more of it. The Wall Street Journal's editorial page long ago branded these lower-income big-government hogs “lucky duckies.” 

One significant obstacle to this line of argument is that people at the bottom actually pay plenty of taxes. Even when they don't pay federal income tax, they pay payroll taxes and excise taxes at the federal level, and they pay state and local taxes. A new report by Citizens For Tax Justice, a labor-funded nonprofit with a reputation for dispassionate economic analysis, lays this out. When you factor in all state and local taxes, the bottom fifth (i.e. people earning, on average, about $13,000) pays on average an effective tax rate of about 17 percent. When you do the same for the top one percent (i.e. people earning, on average, about $1.4 million) the average effective tax rate is 29 percent.

If you ask me, 17 percent to 29 percent isn't a very progressive spread. Worse, the top one percent's effective tax rate (29 percent) is a mere four percentage points higher than the effective tax rate (25 percent) for the middle fifth, whose average income is $42,000, as against-- let me say it again-- the one percent's $1.4 million.

The point relevant to the lucky duckies debate is that the bottom fifth is paying a share of the nation's total taxes-- federal, state, and local-- that's roughly equivalent to its share of the nation's total income. That remains true for all groups as you go up the income distribution all the way to the top one percent. So let's hear no more crap about the lumpen proletariat failing to appreciate the burden of taxation. They feel it (and all other financial burdens) a lot more heavily than any Journal editorial writer, any member of Congress, any presidential candidate, or any think-tank apparatchik.

Joshua Holland covered this idea in his book, The Fifteen Biggest Lies About The Economy.

Contrary to the right-wing narrative, everyone pays taxes. Conservatives insist that the tax system is highly progressive and that anyone who suggests otherwise is just whining. Rush Limbaugh put it this way: “The bottom 50 percent is paying a tiny bit of the taxes, so you can’t give them much of a tax cut by definition. Yet these are the people to whom the Democrats claim to want to give tax cuts. Remember this the next time you hear the ‘tax cuts for the rich’ business. Understand that the so-called rich are about the only ones paying taxes anymore.”

That’s true, however, only when you do a little sleight of hand. You have to look at the federal income tax in isolation and then pretend that it represents the government’s entire take. It’s true that the bottom 40 percent of U.S. households don’t pay much in federal income taxes. And, according to a Congressional Budget Office (CBO) analysis, the wealthiest 1 percent do pay more in federal income taxes than the bottom 90 percent combined.

Yet that’s a far cry from the claim that the “poor don’t pay taxes.” Rushbo won’t tell you, but the CBO also said that if you look at state and local taxes, the top 1 percent of Americans paid 5 percent of their incomes, while the bottom 50 percent (many of them among those who paid no federal income taxes) shelled out 10 percent, twice as much proportionately. In addition, the CBO found that the bottom 80 percent of the pile paid around 9 percent of their incomes in Social Security taxes, while the top 1 percent paid only 1.6 percent of theirs. After the income tax, Social Security taxes represent the largest share of the federal take.

A 2009 study by the nonpartisan Institute on Taxation and Economic Policy looked at state taxes (including sales taxes) and concluded, “Nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. That is, when all state and local income, sales, excise and property taxes are added up, most state tax systems are regressive [emphasis theirs].” The top 1 percent of earners paid around 5 percent of their incomes in state and local taxes, while the poorest fifth of the population paid almost 11 percent of theirs.

When the institute looked at excise taxes-- on gas, cigarettes, alcohol, and other goodies-- they found that the “average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.7 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers.

When you add it all up-- state and local taxes, federal taxes, and excise fees-- it turns out that the rich, the poor, and those in between all end up with about the same tax rate. That’s the conclusion of a 2007 study by Boston University economists Laurence J. Kotlikoff and David Rapson. They summarized, “The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.”

That brings us to an important point: It wasn’t always that way. According to a 2010 study by Wealth for the Common Good, an organization of deep-pocketed progressives, “Over the last half-century, America’s wealthiest taxpayers have seen their tax outlays, as a share of income, drop by as much as two-thirds. During the same period, the tax outlay for middle-class Americans has not decreased.” The study found that the nation’s “highest earners-- the top 400-- have seen the share of their income paid in federal income tax plummet from 51.2 percent in 1955 to 16.6 percent in 2007, the most recent year with top 400 statistics available.” Between 2001 and 2008 alone, tax cuts for the wealthy cost the U.S. Treasury $700 billion.

Republicans use the lie that the poor don’t pay taxes to justify big cuts for the wealthy. The bad news is that those cuts raise taxes for everyone else. You won’t read that in the legislation, but it’s the real-world result of cutting taxes without taking on the politically unpopular task of identifying services to be cut.

Even when revenues drop, people expect the cops to come when called and the streetlights to burn. Budgets become stretched, and communities tighten their belts-- perhaps laying off some workers. But then-- and this is key-- state and local governments also make up much of the shortfall with higher fees for various services, higher tuition at public colleges, and increases in sales, excise, and property taxes, all of which fall disproportionately on the poor and the middle class.

Most government spending is locked in-- for Social Security and Medicare, the defense budget, and a host of other programs that would be politically unpopular to cut. The Right has done an excellent job of pushing the notion that they’re for tax cuts, but remember that they are talking about corporate taxes, capital gains taxes on investments, and taxes for the top earners. When those revenues dry up, the rest of us have to pick up the tab.

So keep in mind that the Right actually loves to raise taxes, just as long as they’re hiked on the backs of ordinary working people. Barack Obama’s first budget made the Bush tax cuts permanent for every couple making less than $250,000 and every individual taking in less than $200,000, while allowing those cuts targeted at the richest Americans to expire. This effectively cut the tax bills of about 98 percent of the population. The response from House Minority Leader John Boehner, a long-time advocate of tax cuts? “The era of big government is back, and Democrats are asking you to pay for it,” he told the Washington Post.

So why did I just assault you with all that math? If you read Eric Alterman's column in the NY Times Saturday, Cultural Liberalism Is Not Enough, you probably figured it out. Obama and other conservative Democrats are still itching for a "Grand Bargain" with the reactionaries. The gap between progressives and the Obama wing of the Democratic Party is at least as big as the gap between Obama and Paul Ryan. Alterman makes the case that under Obama "economic liberalism is on life-support, while cultural liberalism thrives" and asks the obvious question: why?

The simple answer is that cultural liberalism comes cheap. Supporting same-sex marriage or a woman’s right to choose does not cost the wealthy anything or restrict their ability to become wealthier. But there is more to it than that.

The United States has undoubtedly become a fairer, more open and less oppressive society thanks largely to the political and cultural struggles waged by liberals during the past half century. The progress in securing basic human and civil rights for women, African-Americans, gay men and lesbians, immigrants and their children, Americans with disabilities and so many others is a testament to liberal courage in the face of adversity and oppression. This was the work of “those who marched and those who sang, those who sat in and those who stood firm, those who organized and those who mobilized,” as Barack Obama recalled on the occasion of the unveiling of the memorial statue of the Rev. Dr. Martin Luther King Jr. on the National Mall in October.

Liberal optimism regarding race and progress had been buoyed by the belief that, with the right experts running the government, an expanding economic pie could be guaranteed indefinitely, which would in turn purchase peace between feuding factions. But liberals had no ready response when the global economy chose not to cooperate, first with the rise in oil prices following the 1973 Arab-Israeli war and then with the exodus of exactly the kinds of manufacturing jobs that had provided the engine driving the expansion of the middle class in the first place.

...The president often sounds as if he believes in a vigorous economic populism. Just this past Tuesday he told the American Society of News Editors: “In this country broad-based prosperity has never trickled down from the success of a wealthy few. It has always come from the success of a strong and growing middle class. That’s how a generation who went to college on the G.I. Bill, including my grandfather, helped build the most prosperous economy the world has ever known.” But so far the president has been unwilling to put his budgetary moneys where his mouth is.

In fact, Obama has proved far more adept at adapting his positions toward the increasingly radical views enunciated by the leaders of the Republican Party than he has in articulating — and sticking to-- an alternative vision of the role of government in ensuring a fair economic shake for all its citizens.

He asked the right question on Tuesday when he said: “Can we succeed as a country where a shrinking number of people do exceedingly well, while a growing number struggle to get by? Or are we better off when everyone gets a fair shot?” But as liberals have repeatedly learned to their dismay, the devil is not in the poetry of the president’s election-time rhetoric but in the prose of his apparent eagerness to seek out a compromise on almost any Republican proposal offered him. Liberals have spent decades trying to adjudicate the claims of their conflicting constituencies without focusing sharply enough on the economic well-being of a broad section of Americans. A fight for fairness and equity could unite the working poor and middle class in a winning coalition for the future, but the problem today for liberals is less the message itself than the credibility of the messenger.

While signaling his support for much if not all of liberalism’s cultural agenda, President Obama has occasionally tossed economic liberals a rhetorical bone-- but he has also worried too much about deficit reduction. In this regard, Obama embodies the unsolved liberal conundrum. Were the president to embrace a genuinely populist economic agenda and mean it this time-- just as Franklin D. Roosevelt did in his second term-- he might go a long way toward solving the problem that has dogged liberalism now for nearly half a century.

We need to be more careful in 2015 about finding a candidate who will-- and not getting stuck with a choice between two conservatives like Obama and Clinton and then having no choice but to chose between the lesser of two evils in the general election.