Tuesday, April 20, 2010

Critics Of The Middle Class

On April 15, Rush Limbaugh stated

For starters, almost half of US households aren't paying any income taxes on their 2009 earnings. The exact figure is 47 percent, says the Tax Policy Center of the Urban Institute," a far-left-wing bunch, by the way, "and Brookings Institution, two think tanks. Among elderly households, 55 percent pay no income tax; among all households with children (including those headed by single parents), the nonpaying share is 54 percent." So depending on which group demographically you look at, well over half of some groups are not paying income taxes. Now, they are paying Social Security taxes and sales taxes and all that, but they're not paying income tax.

But this isn't about only Rush Limbaugh who, to his credit, noted that the federal tax burden is not limited to income taxes but extends to "Social Security taxes and sales taxes and all that." O.K., so "Social Security taxes" are FICA and apply to both Social Security and Medicare, "sales taxes" are excise taxes (including for gas), and "all that" probably would be corporate taxes. Still, Rush is on his best behavior at these few times that he's not actively misleading his listeners.

Not so, apparently, Phyllis Schlafly on April 13 wrote

Income tax day, April 15, now divides Americans into two almost equal classes: those who pay for the services provided by government and the freeloaders. The percentage of Americans who will pay no federal income taxes at all for 2009 has risen to 47%.

This is a critical part of the right's narrative- most people are freeloaders while "productive" Americans carry them on their back by paying confiscatory fees to the federal government. Or, as Schlafly so insensitively, demagogically and inaccurately (a trifecta!) calls it, "a massive transfer of wealth and a soak-the-rich racket."

There are two problems with this formulation. It is, as David Leonhardt explained on April 13-14 in The New York Times, misleading.

Of course, the wealthy must pay a disproportionate share of federal taxes- that's where the money is, and increasingly is, despite a theoretically progressive tax system. A study by Emanuel Saez of the University of California, Berkeley covering the period through 2007 found that the share of national income held by the wealthiest .01% of U.S. families increased in 2007 to 6.04%, the highest on record. The share of national income held by the wealthiest 1% increased in 2007 to 23.5%, the second highest on record. Further, from 1993 to 2007, average real income growth fell to 1.3% annually for the bottom 99% of individuals; for the top 1%, the corresponding figure was 5.9%.

Where it was once said "the rich get richer and the poor get poorer," the current reality is "the rich get richer and the middle class gets poorer."

While the share of federal income tax paid by the wealthy has inevitably, and fairly, grown, more than three-fourths of American households paid more in payroll taxes than in income tax. (And that was before the Obama income tax cuts, which has cut the effective federal income tax rate for the vast majority of Americans.) Leonhardt notes "the reason is that poor families generally pay more in payroll taxes than they receive through benefits like the Earned Income Tax Credit." The EITC was begun under President Ford (a Republican who, by the standards of most Republicans today, would have been a Socialist), heralded by President Reagan (ditto), and expanded by President George W. Bush (whom, as a right-wing failure, many GOP pols don't even acknowledge),and Bill Clinton.

The progressivity of the income tax system is further eroded by underreporting income. Generally, as this paper indicates, the upper class hides more of its income than does the middle class, in part because the source predisposes the income to be opaque.

While both Limbaugh and Schafly specify the income tax, they conveniently neglect to note that they are speaking only of federal taxes. State and local taxes generally are more regressive than federal taxes on the whole (and especially the federal income tax) and take a disproportionately large bite out of the middle class while leaving the wealthy relatively unscathed.

But there is something else which has gone largely unmentioned. If 47% of Americans are paying no federal income tax and the vast majority of citizens are of the middle class, most of the individuals benefitting are of the middle class. That's right- Limbaugh, Schlafly, Hannity (who approvingly quoted from Schlafly's piece), and the other conservatives whining about the 47% of Americans not paying any net income tax are complaining about the middle class. Sure, poor people are effectively paying no federal income tax- but they're outnumbered by their middle class brethren whom, these purveyors of privilege claim, are getting off scot-free.

Barack Obama has cut income taxes for the vast majority of working Americans. So when Phyllis Schlafly is exorcised about the income taxes paid by the top 10% of the public or Rush Limbaugh about "subsidizing certain activities and subsidizing certain people," they are complaining about the same thing: assistance for the middle class.

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