PhotoElection years provide an opportunity for political leaders and the parties they represent to raise and debate crucial issues. This can not only help voters make an informed decision but can also contribute to an elightened public dialogue about how best to address these issues to achieve the most desirable long-term solution.

To say that this seldom occurs is the mildest of understatement. In this year's election cycle, both parties and their candidates have carelessly and recklessly thrown around misstatements, distortions and outright lies in hopes of eking out another vote or two in crucial swing states.

Few topics have been more cynically misused and abused in the current campaign than tax policy. The Democratic candidate, Barack Obama, has proposed to raise taxes on those who have invested in America by putting their money in stocks and bonds, where it finances the operations of corporations and governments, thereby creating jobs and helping to grow the economy.

The Republican candidate, Mitt Romney, has lately spent his time denigrating voters who don't pay federal income taxes, suggesting they will vote for Obama to keep the cash flowing their way.

"There are 47 percent who are with him, who are dependent on government, who believe that, that they are victims, who believe that government has the responsibility to care for them. Who believe that they are entitled to health care, to food, to housing," Romney said in a secretly-recorded video.

This has become a GOP rallying point lately, with former White House Press Secretary Ari Fleisher saying on CNN last night that these supposed free loaders are "getting government for free."

Is it true?

PhotoIs it true that a large segment of American society is getting a free ride, contributing nothing to the greater good?

Not according to most reasonable economists. In a timely analysis, the Center on Budget and Policy Priorities reports that when all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their income in taxes, on average.

After all, the fact that someone is not required to pay income tax in a given year does not mean that that person does not pay other taxes, including:

  • Payroll taxes. These are levied on all workers. Lower-income workers generally pay nearly 10 percent of their income on payroll taxes. Higher-income workers pay a much smaller percentage.
  • Sales taxes. Among the least progressive of all taxes, sales taxes hit lower-income people harder than those with higher incomes. Oddly, even Democrats have recently applauded the extension of sales taxes to online purchases.   
  • Gas tax. Everyone pays taxes on the gas they pump into their tanks to get to work, to the doctor or to class. Lower-income Americans are more likely to have older cars that get poorer gas mileage and thus may pay more in gas taxes than their wealthier counterparts.
  • Property tax. Nearly everyone pays property taxes, which go to support local schools and municipal government.  Even renters pay property tax, as nearly all landlords jack up the rent sufficiently to cover the tax on each unit. Of course, landlords can deduct the property tax from their return; their tenants can't.

Is it permanent?

PhotoGov. Romney and the others who denigrate those who have fallen on hard times seem not to have considered that this condition is quite possibly temporary.

Many of those who have not paid federal income tax in recent years are those both candidates say they want to help -- workers who have lost their jobs as a result of globalization and the financial meltdown that is still rippling through the economy. The most recent jobs report finds only 96,000 new jobs were created in August, leaving the unemployment rate at 8.1%, a figure that everyone agrees would be much higher if it included those who have given up and quit looking for work.

If and when the economy begins to perk and new jobs are created at a faster clip, many of those who are not unemployed may return to work and begin paying income taxes again.

Likewise, many of those who have not paid taxes for the last year or two are students, who presumably will become taxpayers when they graduate and find steady work. 

Millions more have fallen out of the work force because of illness -- their own or others -- while others have simply become too old to work.

Eventually, those who are elderly, ill or disabled may be expected to die, which will persumably remove them from Mr. Romney's list of slackers.

No assets

PhotoPresident Obama, who won election on a promise that he would work to mend fences and reduce partisanship, has chosen to demagogue the taxation issue, proposing to persecute the rich rather than offering a comprehensive proposal for tax reform.

Fundamentally, as Obama well knows, the United States economy will remain on shaky ground as long as most Americans essentially have no assets. A study released today finds that in 2010 the typical middle class family had financial assets of $27,300 – including retirement savings but not pensions.

When debt is calculated into the equation, many families today have a negative net worth -- more debt than assets, leaving them helpless to respond to setbacks and changing conditions. The housing crisis, for one, would have been much less damaging if most families were not mortgaged to the hilt.

Why is it like this? Part of the reason is a tax policy that rewards spending and penalizes investment. Taxpayers -- all of us, not just the wealthy -- are encouraged to deduct expenses but, with few exceptions, are taxed on interest and dividends that we have earned.

Obama, who knows better, has advocated increasing the tax rate on dividends and interest, in effect falling into Romney's trap by encouraging Americans to spend, spend, spend and discouraging them from saving and investing so that they can care for themselves and their families and provide capital that creates prosperity and jobs.

Consumption tax

In its early years, the United States had no income tax. The federal government raised money through sales and excise taxes.  Investments were not taxed and families were encouraged to buy property, open savings accounts and make other investments.

For years, economists and Congressional staff members have talked longingly of replacing the current hodge-podge of taxes with a consumption tax that would reward Americans for saving money while taxing them when they spend it.

With a deduction that protected lower-income Americans, such a system could keep the lights on in Washington while enabling middle-class families to accumulate wealth that could help them through troubled times and eventually be passed on to their children. 

There are other options that deserve discussion but you'll hear none of them from the candidates who have chosen the path of divisive demagoguery this year. Americans deserve better.  


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