Analysis: "47 percent" lament belies Republican tax credit support

WASHINGTON Fri Oct 19, 2012 9:02am EDT

Republican presidential nominee Mitt Romney answers a question during the second U.S. presidential debate in Hempstead, New York, October 16, 2012. REUTERS/Shannon Stapleton

Republican presidential nominee Mitt Romney answers a question during the second U.S. presidential debate in Hempstead, New York, October 16, 2012.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - Mitt Romney has distanced himself from his remarks lamenting the nearly 47 percent of Americans who do not owe federal income taxes, but his fellow Republicans helped engineer the very tax breaks that have put many in that category. And little change is expected soon.

A key reason: The breaks in question - the earned income tax credit and the child tax credit - are based on core Republican philosophies of encouraging work to lift people out of poverty, Republican aides and many conservatives say.

The number of Americans not owing federal income taxes has been growing since the mid-1980s, and the increase largely stems from expansion of these two tax credits - championed by Republicans from conservative economist Milton Friedman to former President Ronald Reagan.

"It is absolutely true - there is some degree of disconnect between complaining about the 47 percent and yet supporting the policies that brought it about," said economist Alan Viard of the conservative-leaning American Enterprise Institute.

The income credit began under Republican President Gerald Ford and was significantly expanded by Reagan. The child credit doubled to $1,000 under Republican President George W. Bush.

The two tax credit programs have long enjoyed bipartisan backing because they marry Democrats' inclination to help the poor with Republicans' emphasis on individual responsibility.

"The credits have been so sustainable because they meld together values that liberals and conservative emphasize," said Chuck Marr, director of tax policy at the liberal-leaning Center for Budget and Policy Priorities.

In secretly taped remarks, Republican presidential hopeful Romney was heard labeling the 47 percent not owing federal income taxes as people "who believe they are victims, who believe that government has a responsibility to care for them."

He has since distanced himself from those remarks, saying in Tuesday's debate with President Barack Obama, "I want 100 percent of the American people to have a bright and prosperous future."

In his original comments, however, Romney was stating what many Republicans have been grumbling about for several years as the number of nonpayers crept up.

The 47 percent figure, from the nonpartisan Tax Policy Center, is largely made up of the elderly and working poor.

Taxpayers can claim an EITC with income of up to about $44,000 if they have three or more children. With one child, the income limit is about $36,000.

The 2011 credit ranges from about $500 to nearly $6,000 - with the highest credit going to those with three or more children.

To qualify for the CTC, an individual must earn more than $3,000 in wage income and can claim a $1,000 credit per child.

WHAT DO REPUBLICANS WANT?

What Republicans would do to put more people on the tax rolls remains unclear. But Republican aides in Congress said they would probably not significantly scale back the credits.

Instead of advocating the credits' demise, one senior aide said, they are protesting the lagging wage growth during the last four years under Obama and the overall increase in the slice of the population receiving government payments.

Obama expanded the reach of the two tax credits as part of his economic stimulus aimed at revving up the economy. The expansion made it easier to qualify and minimized a penalty for marriage. Those changes are due to expire at the end of this year.

Republicans oppose renewing Obama's changes when they expire.

"Further expansion may be where the dividing line seems to be," Viard said. Senior Republican congressional aides echoed this sentiment.

The extensions' fate will be decided after the November 6 election and before December 31, when Congress faces a slew of decisions collectively known as the "fiscal cliff."

It is unclear how Romney would address the credits. But Kevin Hassett, an AEI economist who advises Romney, has proposed combining several credit programs, not ending them.

An early version of a budget from Paul Ryan, the House Budget Committee chairman who is Romney's running mate, proposes slashing all tax deductions - including these credits - in exchange for lower tax rates.

Many bipartisan plans to tame the deficit and overhaul the tax code keep the credits.

The Simpson-Bowles plan includes an option to scrub the code of nearly all tax breaks but maintains both credits.

Even the conservative Heritage Foundation backs the earned income tax credit and includes it in its tax revamp.

"The proper way to fix this problem isn't to raise taxes on families and the poor," said Curtis DuBay, a Heritage economist, who called the EITC an effective anti-poverty program.

Joe Thorndike, a historian at the publication Tax Analysts, said the debate over how broad a population the income tax reaches was not a new one.

He pointed to former Treasury Secretary Andrew Mellon in the 1920s backing the idea that every individual pay some income tax - no matter how small.

Thorndike urged Democrats to embrace the idea that more taxpayers should be paying income tax. He said it could undermine support for income tax overall if too few people paid it.

"Americans care about this number, it means something to them," Thorndike said.

(Editing by Howard Goller)

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Comments (41)
Crazy how the focus is always on income tax – then ignores that all wage earners contribute payroll taxes — including a social security tax that is inexplicably phased out for high incomes. This idea that the poor and elderly and lower middle class don’t pay taxes is bunk.

Oct 19, 2012 1:33am EDT  --  Report as abuse
flashrooster wrote:
The thing to be taken away from Romney’s 47% comments is that Romney is an arrogant, elitist, SOB, who’s had it made all his life, thinks he’s better than everyone else, and most importantly, Romney cares nothing for the American Middle Class. Romney and Ryan both are dyed-in-the-wool Ayn Rand trickle-down enthusiasts. There is absolutely no reason to believe that Romney will do anything but hurt the Middle Class. It’s actually obvious to those who aren’t wearing blinders. Romney doesn’t care. He has no reason to care. He doesn’t have a dog in the fight. He just wants to be President, and after that he’ll do whatever his party and his donors tell him to.

When Romney says that his tax plan won’t increase the deficit, he’s lying. Ask him to prove that he’s not, he can’t. With the deficits we have and the growing debt, it’s irresponsible to talk about tax cuts. We can’t even afford the Bush tax cuts, much less additional tax cuts. It just can’t be done without increasing the deficit. Several economists have shown that it can’t be done, and no one can show how it CAN be done. It’s Romney’s plan and HE can’t even explain how it can be done. That’s because it can’t.

The plan is to grow the deficit and the debt so big that the Republicans will be able to scare the American public into drastically slashing government spending across the board–the Ryan plan. They’ll say everyone has to sacrifice. The problem with that is that the Middle Class has been sacrificing for over 3 decades now and the wealthy will NOT be asked to sacrifice ANYTHING. That’s clear. We know taxes on the wealthy will not go up under a Romney administration. So when they say everyone has to sacrifice, what they’re really saying is they’re going to screw the Middle Class some more. This is not rocket science.

The disproven rightwing philosophy is that if you cut taxes on the wealthy, they’ll create jobs. The truth is that we tried that under Bush. We went from surpluses to record deficits, and Bush has the worst job creation record of any President over the last 70 years. US corporations are sitting on over $2 trillion dollars. Why would more tax cuts create jobs when corporate America is already sitting on over $2 trillion? So the deficit increases, the Middle Class suffers more, and corporate America sits on $4 trillion dollars, instead of “just” $2 trillion. Now I ask you, is that really a good economic plan?

Oct 19, 2012 1:48am EDT  --  Report as abuse
SanPa wrote:
GOP> Bankrupting America one election at a time.

Oct 19, 2012 2:15am EDT  --  Report as abuse
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