Talkin’ Tax Cuts at the NRI Summit

Mona Charen was the first of several speakers over the course of the NRI Summit to offer up this important point: The United States is now at the point where about 50% of the population pays no income tax. Therefore, tax-cuts can no longer be the centerpiece of an effective national Republican platform, because half of the population has no taxes to cut. (Unless cuts in payroll taxes are put on the table).
This has some very practical implications for state politics in a place like Rhode Island. For instance, when Rhode Island Democrats talk about property tax-reform, are they really talking about reform, or is the real goal to shift even more of a tax burden to the upper 50% of the population, so that just half of the population is paying for all Federal and state services, and through education-aid and municipal aid funding formulas, for most local services too?
I should also note that, despite the concern about taxpayer demographics, there seemed to be very little enthusiasm for “big” ideas like replacing the income tax with a national sales tax. I’m not sure if that is because of concerns about politics or policy.

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frank
frank
14 years ago

I don’t understand how it is that 50% of the population pays no income tax. Can you explain? Thanks.

Ragin' Rhode Islander
Ragin' Rhode Islander
14 years ago

Easy.
1) There is a “progressive tax” – meaning that rates increase as one’s income goes up. So you have a 15% income tax bracket, which then jumps to 28%, and so on.
2) Before even the 15% tax bracket kicks in, there is adjusted gross income. There is the personal deduction, deductions for dependents / children, daycare, mortgage interest, etc. Pile enough of these on, and the deductions wipe out income taxes due.
3) Then there is the EITC – “Earned Income Tax Credit” – which is essentially a disguised welfare check. What this does is give low-income households a “tax refund” for income taxes they didn’t pay in the first place.
Use Nos. 2 and 3 to exempt enough people from paying income taxes, and voila!

Andrew
14 years ago

Frank,
RRI is spot-on about the mechanics of the tax code.
The important thing to remember about the politics of this situation is that high-tax advocates use it (and the general progressivity of the tax-code) to make disingenuous claims about tax-cuts “for the rich”. For instance, if the President proposed a 1% income tax reduction for everyone who pays income tax, the next day, those advocates would make claims about the heartless President who plans to give tax cuts to only the top 50% of the population, and not to the “working poor” in the bottom 50%.
Of course, this spin intentionally ignores the impossibility of lowering taxes on people who aren’t paying any to begin with!

frank
frank
14 years ago

Thanks for the explanation Ragin and Andrew. I appreciate it. Too bad these sorts of things aren’t commonly known.

Ragin' Rhode Islandert
Ragin' Rhode Islandert
14 years ago

>>Too bad these sorts of things aren’t commonly known.
Right on, Frank.
But as we know, the “mainstream media” is not about to cast a critical eye toward the “progressive agenda,” nor its sound bites.

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