The 47% of people who did not pay federal income tax is made up of the elderly, the disabled, the those earning military pay, and even some millionaires, but the largest portion of those who do not pay the tax are the working poor. They don’t pay federal taxes because of the Earned Income Tax Credit.
The idea that lead to the Earned Income Tax Credit orginated with conservative economist Milton Friedman. He proposed a transfer of funds to every citizen that he called a negative tax. If the transfer was set at $6,000 per person per year, then a family of four with no other income sources would have $24,000 to live on. Congress did not like the idea of giving everyone the transfer payment because they believed it would result in too many freeloaders.
Congress took Friedman’s idea and applied it to only those who work. The idea was to encourage people to work, but provide subsidies to those who work for low pay. The law was passed in 1975, and President Ronald Reagan praised it:
Millions of working poor will be dropped from the tax rolls altogether. The bill I’m signing today is not only an historic overhaul of our tax code and a sweeping victory for fairness, it’s also the best anti-poverty bill, the best pro-family measure and the best job creation program ever to come out of the Congress of the United States.
The Tax Policy Center concluded that the law accomplished its goal of bringing more people into the labor market.
The Newt Gingrich controlled House worked with President Bill Clinton in the nineties to expand the Earned Income Tax Credit in their efforts to “end welfare as we know it.” Clinton signed the bill in 1997.
President George W. Bush pushed through a huge tax cut in 2001 that moved even more lower-income people off the federal tax rolls. His massive 2003 tax cut was aimed at the wealthy and drastically cut their taxes – some even as far a zero. Bush’s doubling of the $500 Child Tax Credit moved even more off the the tax rolls. (Yes it’s true, not all of his tax breaks targeted the wealthy.)
When Mitt Romney said to Neil Cavuto on Fox News last night: “I know some believe that government should take from some to give to the others. I think that’s an entirely foreign concept,” did he insult all the former Republicans that helped enact the Earned Income Tax Credit? Oh my God! Ronald Reagan must have been a foreigner! Has anyone checked his birth certificate?
Seriously though, Republicans pushed through most of the tax laws that cut taxes for 47% of Americans to zero, so when Romney says the idea that our government should redistribute wealth is a foreign, just what party does he think he represents? How stupid does he think we are? Does he think he can get away with running as the Republican candidate for President and complain that 47% of Americans pay no income tax when his party that was instrumental in bringing that about?
Based on all he’s said and done in the past few weeks, one could very well think he is a stupid man, but I don’t really think is. I think he knows quite well that what’s fueling our long-term debt is that, in addition to redistributing tax payments to the working poor, the Republicans also gave away trillions of dollars of tax cuts to the super rich. I also think he knows our social safety net is here to stay, so if he wants to change the tax code to run surpluses, he has to do what Bill Clinton did: Arithmetic. He won’t do it though, because the Paul Ryan/Tea Party faction of his party won’t let him.