Wednesday, October 08, 2008

Citizens and Taxpayers

Under the provocative title "How Many Americans Should Have Skin in the Income Tax?" the TaxProf blog recently described a study by the Tax Foundation regarding the number of people who pay no federal income tax. While about one-third of income tax filers reported no federal income tax liability in 2006 (up from 20% in 1981), this number is estimated to rise to 43% under John McCain's proposed tax policies and 44% under Barack Obama's. TaxProf concluded: "The Tax Foundation rightly notes: 'It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.'" It is, indeed, a good idea to have a serious discussion about why this question seriously misses the point.

This view of low-income taxpayers is reminiscent of the Wall Street Journal editorial page's infamous "lucky duckies" argument from several years ago. The basic idea is that some people have low enough incomes to fall below the threshold for paying federal income taxes, making them lucky duckies who can thank their good fortune to have no fortune. Like the "skin in the game" trope, the stated worry is that people who get a free ride will not have a reason to be vigilant guardians against overweaning government and thus will not be good citizens.

The most obvious response to this argument is that the people who pay zero federal income tax still pay taxes. Between payroll taxes (starting on the first dollar of earned income), sales and excise taxes, state and local income taxes (which frequently do not exempt nearly as much income as in the federal system) and property taxes (paid by those who own homes despite low incomes), even the lowest income people pay taxes. This is (or should be) old news, but it does not stop people from repeating the argument as if federal income taxes were the whole of the tax system.

Much more fundamentally, however, are we really to take seriously the idea that people -- even (or especially) purely self-interested people -- become disengaged simply because they currently pay no income taxes? Last week, Mike Dorf discussed the Johnson Amendment, which puts tax exempt organizations at risk of losing their tax-free status if they engage in certain types of partisan political activity. Recently, some ministers directly engaged in a protest to dare the IRS to revoke their tax exempt status for making blatant political endorsements from the pulpit. By the "skin in the game" argument, this should not have happened. The churches currently pay no taxes, so they must be "disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy." When it comes to the social policy of subsidizing religious activity through the tax code, however, these non-taxpayers are quite obviously deeply engaged.

The broader point, after all, is that one's tax situation can always change. If we view people simply as tax minimizers (and thus subsidy maximizers, since subsidies are negative taxes), as the "skin in the game" and "lucky duckies" logic would have it, there is still plenty at stake for everyone who potentially has something to gain or lose from a change in tax and spending policy. That is, everyone. Moreover, even people who know that they are going to receive a subsidy will understand that the size of their potential subsidy will depend on whether the rest of the government is wasting money, giving even net recipients of government dollars the same (if not greater) incentive to oppose waste elsewhere as everyone else.

If we do not view everyone as simply out for their own hide, of course, the argument becomes weaker still. Citizenship is about more than one's net tax bill. If the government fails to properly regulate the financial system, then we lose livelihoods, neighborhoods, and potentially the entire economy. If the government allows pollution to poison the water and air, disease and death follow. We all have skin in the game, all the time.

-- Posted by Neil H. Buchanan

[Through October 15, I will be cross-posting on the Concurring Opinions blog.]


egarber said...

I think it's possible to argue that somebody drifting in and out of poverty -- avoiding federal income taxes -- has *more* skin in the game.

I've never bought into the idea that poor people like it that way, simply because it enables them to avoid certain taxes, etc. In my experience, they want the same things we all want for our families.

So whereas somebody in say, the upper middle class is likely to be financially self-sufficient (seeing that they'll survive regardless of policy decisions), a lot of poor people aren't -- which means they have a more immediate vested interest in public investments designed to empower people to make the most of their abilities.

The cynic would say that poor people see even that as another free ride. But all of that is based on the completely unfounded assumption that folks don't want to get ahead. I just don't believe that.

So it's possible to say that somebody who has yet to live the American dream has more skin (interest) in the larger game of making that dream accessible.

KipEsquire said...

It seems to me that you are in fact the one who is being condescending to the working poor here, by dismissing them as too stupid or too apathetic to understand the difference between the federal income tax, FICA taxes, property taxes, etc. To say that such people need not think further than "taxes is taxes" is to insult them. Shame on you.

In any case, the point being made here -- if you could just be nonpartisan long enough to grasp it -- is that the percentage of the no-FIT population is swelling far beyond the poor: 38% of households (give or take), representing almost 50% of the population, is not simply "the poor" but a sizable chunk of the middle class too. At some point the size of those percentages will have a political and sociological impact beyong mere revenue totals.

It's a bit like the Laffer curve: fuzting around in the middle of the curve is generally no big deal -- but when you get to the extremes, policies begin to generate unintended and undesirable consequences.

Tam said...


The point of the post is whether the premise is valid that zero-income-bracket people are "disconnected."

The point is not whether the zero bracket includes too many people, which is a separate and independent issue. The charge on partisanship makes no sense in light of the post's non-position on this second issue, and especially when you take a position without addressing the questions of (a) to what level incomes does the zero bracket apply under current law; and (b) how poor should we require someone be before alleviating them of the obligation to pay taxes.

After all, it may very well be that we have so many people in the zero bracket now because people are slipping from low-middle class into poverty and from poverty into extreme poverty, and not because the government is generous to a fault.

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