The 47%: why don’t they pay federal income taxes?

By now anyone reading this has probably already heard about the leaked video from a Mitt Romney fundraiser in May where he said in part:

“There are 47 percent who are with him,” Romney said of Obama, “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it. These are people who pay no income tax.”

He said that his job “is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.”

While it’s true that over 46 percent of tax units in 2011 did not pay federal income tax, the numbers are incredibly misleading. And Romney’s assumption that all of those people consider themselves victims and that they are all Obama supporters is beyond ridiculous.

Let’s look at some data from the Tax Policy Center. In a paper last July, researchers probed that simple issue: Why Some Tax Units Pay No Income Tax.

The abstract from that paper:

About 46 percent of American households will pay no federal individual income tax in 2011, roughly half of them because of structural features of the income tax that provide basic exemptions for subsistence level income and for dependents. The other half are nontaxable because tax expenditures— special provisions of the tax code that benefit selected taxpayers or activities—wipe out tax liabilities and, in the case of refundable credits, result in net payments from the government. Most important of those tax expenditures are provisions that benefit senior citizens and low-income working families with children. While those factors particularly affect lower-income households, different provisions eliminate taxes for other households. Itemized deductions and credits for children and education are more important for middle-income households, while the relatively few high-income nontaxable households benefit most from above-the-line and itemized deductions and reduced tax rates on capital gains and dividends.

Here’s what that looks like:

In other words, about half of the units that pay no income tax are exempted by special treatment in the tax code, and about half are exempted because their incomes are so low. The vast majority of that latter group have jobs and pay payroll taxes.

Of those who have no income taxes because of tax expenditures, the largest single group are elderly:

For more, check out Ezra Klein’s piece Romney’s theory of the “taker class,” and why it matters:

For what it’s worth, this division of “makers” and “takers” isn’t true. Among the Americans who paid no federal income taxes in 2011, 61 percent paid payroll taxes — which means they have jobs and, when you account for both sides of the payroll tax, they paid 15.3 percent of their income in taxes, which is higher than the 13.9 percent that Romney paid. Another 22 percent were elderly.

So 83 percent of those not paying federal income taxes are either working and paying payroll taxes or they’re elderly and Romney is promising to protect their benefits because they’ve earned them. The remainder, by and large, aren’t paying federal income or payroll taxes because they’re unemployed. But that’s a small fraction of the country.

Klein presents this chart, which looks not at tax units but at Americans not listed on taxable returns (so it’s the total population):

Look at the jump in 1986 and the other in 2001. Those leaps are because of tax rate cuts under Republican presidents Reagan and Bush 2. Those cuts simply exempted many low-income filers. At the same time, the number of older Americans who are exempt has increased, raising the overall percentage to a degree.

And the recent recession and the steep drop in incomes also played a role.

Romney’s remarks are not only offensive. They’re just wrong — it’s a fictional narrative about 47 percent of Americans taking from the other 53 percent.