Posted by
Always To The Right on Wednesday, October 22, 2008 7:08:32 PM
Under either John McCain or Barack Obama, millions of Americans will wind up paying no federal income taxes. According to the Tax Foundation,
tax liabilities will drop to zero (or less) for 15-16 million more
Americans than now, pushing that to almost half of all filers. While
that may seem optimal to some, if it doesn’t come with significant
reductions in overall revenue, it forces fewer people to pay for more
government:
The tax code has always contained provisions that reduce
the income tax burden for low-income workers, such as the standard
deduction, personal exemption, and dependent exemption. Between 1950
and 1990, the percentage of tax filers whose entire tax liability was
wiped out by these provisions averaged 21 percent. Since then,
lawmakers have expanded credits—such as the earned income tax credit
(EITC)—while creating a plethora of new credits, including the child
tax credit, the HOPE credit, lifetime learning credit, and the credit
for adoption expenses.
Most tax credits can only reduce a taxpayer’s amount due to zero,
but the EITC and the child tax credit were also made refundable,
meaning that taxpayers are eligible to receive a check even if they
have paid no income tax during the year. Those tax returns have become,
in effect, a claim form for a subsidy delivered through the tax system
rather than a direct payment from a traditional government program like
welfare or farm supports.
As shown in Table 1 below, the Tax Foundation estimates that there
will be 47 million tax returns with zero income tax liability in 2009
under current law. That’s one-third of all tax returns, and those 47
million tax returns represent 96 million individuals.
Both the McCain and Obama plans would increase this number by
expanding existing tax benefits or creating new ones. Senator McCain is
proposing one expanded provision—the dependent exemption—and one new
credit, a $5,000 refundable health care tax credit. The Obama plan
contains seven new provisions, including a new “Making Work Pay
Credit,” a “Universal Mortgage Credit,” and a plan to eliminate income
taxes for seniors earning under $50,000.1
Taken together, the Tax Foundation estimates the McCain proposals
would increase the number of nonpayers by about 15 million, bringing
the total number of taxpayers who pay no personal income taxes to 62
million, roughly 43 percent of all tax filers. Almost all of this is
due to McCain’s health care credit, which dramatically realigns health
care incentives and gives people a powerful motive to buy health
insurance. This tax provision has a bigger impact on cutting people’s
taxes than any single proposal from either party.
This seems very unhealthy in terms of commitment to federal
government. The government serves all Americans, and except for the
poorest among us, we should all be contributing to its maintenance.
Without that kind of connection, the people who pay nothing will have
no risk in demanding ever-increasing services and flat-out welfare,
which is what Barack Obama’s tax plan really delivers in its seven
refundables. McCain doesn’t give away money to quite the same degree,
but it has almost the same effect on taxpayers.
As the second chart demonstrates, the Bush tax cuts did not burden
the poor. It had a similar effect as what both Obama and McCain
propose here. Bush increased the number of people without any federal
tax liability by 30%, from 25% to 33% overall.