By Mike Konczal, originally posted on Next New Deal.
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As you've likely heard, Mitt Romney was recorded at a fundraiser saying that "there are 47 percent who are with [President 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."
The right is splitting over whether or not the 47 percent argument is worth defending. It's important to understand that, while it is true that 47 percent of households don't pay a federal income tax, the distribution of the tax burden isn't what the 47 percent theory is about. The 47 percent theory is all about grand political battles. My colleague Mark Schmitt has one examination of where this theory comes from here, Brian Beutler also investigates the background of the 47 percent meme, and Kevin Drum does a history of the EITC here.
Digging into different arguments, there are two distinct parts to a good 47 percent theory. The first is who creates and sustains the 47 percent as a political agent. This can't be the bipartisan set of policymakers who wanted to do income support through work requirements as well as expand certain credits, particularly the child credit; it needs to be agents with specific, outside political goals. Those who pay little or no income tax are a coherent group that acts like a special interest or a class. Instead of the young and the old, as well as the working poor moving into and out of the EITC, this group of people is stable enough that it can act as a coherent political class, but it needs to be created and sustained. Who does it?
The second part of a good 47 percent theory is that the consequences need to be terrible because the stakes are so high. Rather than successfully transitioning people out of poverty and into work, the consequences are negative for our country. But how high are those stakes, and what do they represent?
Let's start at the beginning. Where does this meme start?
1. Trickle On Trickle Down: The Lucky Duckies of the Wall Street Journal Editorial Page: Let's look at the Wall Street Journal's opinion page, November 20, 2002, "The Non-Taxpaying Class: Those lucky duckies":
"Who are these lucky duckies? They are the beneficiaries of tax policies that have expanded the personal exemption and standard deduction and targeted certain voter groups by introducing a welter of tax credits for things like child care and education [...] The 1986 tax reform, for example, with its giant increase in the personal exemption and standard deduction, took six to seven million people off the tax rolls [...] This complicated system of progressivity and targeted rewards is creating a nation of two different tax-paying classes: those who pay a lot and those who pay very little. And as fewer and fewer people are responsible for paying more and more of all taxes, the constituency for tax cutting, much less for tax reform, is eroding. Workers who pay little or no taxes can hardly be expected to care about tax relief for everybody else. They are also that much more detached from recognizing the costs of government.
All of which suggests that the last thing the White House should do now is come up with more exemptions, deductions and credits that will shrink the tax-paying population even further."
Federal tax policies are ensuring that an increasing number of people in our society will never develop a pocketbook interest in free enterprise. Even as they grow older, develop their careers, and earn more money, many will never pay a dollar in federal income tax because they'll never catch up with an increasingly progressive tax system.
To put a modern twist on an old axiom, a man who is not a socialist at 20 has no heart. But a man who is still a socialist at 40 has no head-or pays no taxes. The current trend will increase the percentage of Americans who are permanent net takers from our society, who use more in public resources than they contribute, and for whom a free-enterprise system of entrepreneurship and limited government holds few obvious personal rewards. In a nutshell, the strategy is to make fewer and fewer people pay all the taxes and bear the brunt of paying for a growing government [...] After President Obama's budget stimulus and the proposed tax changes of 2011 [...] this proportion will increast to almost 47 percent. [...]
Simply stated, in the future there will be fewer and fewer people with "skin in the game." Nonpayers will outnumber the payers. We will enventually reach a threshold beyond which most Americans have no economic incentive to defend free enterprise because it is so far from their interest to do so. The young sympathizers of socialism today may be the grown-up defenders of socialism tomorrow.
3. The Hammock. During the Q&A part of this 2011 Paul Ryan speech at Heritage (19m35s), Ryan noted:
I think it's 49 percent of people who don't pay taxes today, though there are other taxes. Here's the danger I think we have. We're coming close to a tipping point in America where we might have a net majority of takers versus makers in society and that could become very dangerous if it sets in as a permanent condition. Because what we'll end up doing is we will convert our safety net system - which is necessary I believe, to help people who can't help themselves, to help people who are down on their luck get back on their feet - we could turn that into a hammock that ends up lulling people into lives of dependency and complacency, which drains them of the incentives and the will to make the most of their lives.
Who? The do-gooders who created the social safety net. It's too generous, too unconditional and not tied enough to work. In a practical way, it is the safety net itself that is creating this condition. Rather than the correct interpretation that people who are not paying taxes are receiving income support that requires work or various, purposely chosen tax credits, this indicts everything from health care to unemployment insurance (which, by definition, you needed to have worked to receive). This is a smart approach, because while going after the "30 percent" isn't really a political platform, dramatically reducing the social safety net is.
Consequences? It's not clear what "complacency" means in this condition, but dependency means that more and more income will come from the government. As this happens, their ability to take personal responsibility will fall apart. People will be beyond the ability to help themselves, hypnotized as they are by the siren's call of the welfare state. This is why Romney can say "I'll never convince them that they should take personal responsibility and care for their lives."
DeMint: Almost half of Americans are getting something from government, and the other half are paying for it. And we're on a track where 60 percent are getting something from government and 40 percent are paying for it. You can't sustain a democracy with that mix.
Reason: Because the 60 percent is going to be voting a bigger and bigger share of the 40 percent's money?
DeMint: It's hard to win elections when you're talking about limited government if the constituents want more from government. You see that phenomenon on display in Greece. When the country is going down in flames, there are still people in the street, demonstrating for more government benefits. We've got to understand we're in trouble, that we don't have much time.
Presumably there are more. What else is missing?
Mike Konczal is a Fellow at the Roosevelt Institute.