Romney: The Little People Don’t Pay Taxes

By L. Randall Wray & Pavlina R. Tcherneva
(Cross posted at Huffington Post)

Everyone recalls the quip by Leona Helmsley: “We don’t pay taxes. Only the little people pay taxes…”. By “we”, of course, she meant the likes of Mitt Romney. By little people, she meant Romney’s 47% – those not worth the bother. As President, the Mitt made clear, he will not be serving them.

And by now you’ve seen his video and reveled in the sheer audacity of truth he (for once!) laid out as he saw it:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax.

Romney went on:

“[M]y job is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.”

After the political fall-out, he tried to back away an inch, claiming that he might have phrased it a tiny bit better for clarity purposes. But this was probably the only time you will ever see Romney make a certifiably coherent statement in this campaign—one free of the halting, searching for the politically correct words, sorts of speeches he normally gives. This time, he was in his element, among the top tenth of one percent—those rare few who do not suck at the teats of Uncle Sam. The “job creators” who send jobs abroad. Who reap the tax benefits of choosing to realize profits offshore rather than at home. Who hire well-dressed lawyers to exploit every tiny tax loophole they can find. Who, as Helmsley knew, do not pay taxes.

To be sure, Romney paid some taxes. At least in his run-up to candidacy. For all we know, it was the first time he ever paid them in his life—he won’t show returns from previous years. As a member of the top tenth of a percent, it actually would be surprising if he paid any significant federal income tax—as the great reporters Bartlett and Steele showed long ago, the tax code is riddled with special exemptions for the top few thousand income earners—most of whom are relieved from federal income tax because they’ve bought off their local representatives. (See here) As Romney refuses to report his taxes from prior years, it’s a safe bet he bought some loopholes for himself. Or maybe Daddy did it for him.

As Henry Blodgett reported (based on data from the Tax Policy Center) there are plenty of high income people who do not pay federal income taxes. Among those we can include as deadbeats there were  7,000 people who made more than $1 million; 22,000 who made between $500,000 and $1 million; 81,000 people who earned between $200,000 and $500,000; and 381,000 who made between $100,000 and $200,000. So there were nearly half a million people who made more than $100,000 but paid no federal income tax. We doubt Romney is writing off these higher income people—actually he is courting them for campaign contributions.

If we look at the bottom half of the population—those that are not worthy of Romney’s attention—Blodget reports that we find: 45% make less than $30,000 per year; 30% make less than $20,000 per year; 15% make less than $10,000 per year; and of the 76 million Americans who pay no income tax, 60 million make $30,000 or less. (Read more) And of those lower income people who don’t pay taxes, 28 million are low income families with children plus seniors; more than half (17 million) are “deadbeat” retirees—people Romney wants to write-off after a lifetime of working hard and contributing to American society!

All that is important, but is not the main subject of our post. Actually, we do not think Romney went far enough in his logic. He only wrote off half the American population as hopeless deadbeats. In truth, by his measure, the true number is more like three-quarters; and it would be easy to make the argument that the bottom 90 percent of the population fits Romney’s definition of entitlement babies.

As Table 1 shows, almost all federal income tax revenue comes from the top. Leaving aside the Romneys and Helmsleys—our truly elite class—federal income taxes really are paid largely by the top ten percent of the income distribution. Those ten percent capture 45% of total income and pay a whopping 70% of the total income tax.  Whereas the income tax share of the rest of us, i.e. the bottom 90% who collectively earn a little more than half of total income, is only 30%. In Romney’s estimation, we’re all deadbeats.

Table 1.

INCOME CLASSES total income total Income tax income income tax total OASDI tax* OASDI tax
2009 ($millions) ($millions) share share ($millions) Share
All income earners  $ 8,001,973  $  865,523

100%

100%

 $ 914,856

100%

Top 1 percent  $  1,432,388  $  306,365

18%

35%

 $         9,149

1%

Top 5 percent  $  2,677,016  $  498,819

33%

58%

 $       45,743

5%

Top 10 percent  $  3,596,925  $  602,713

45%

70%

 $       91,486

10%

Bottom 90 percent  $  4,405,048  $  262,810

55%

30%

 $     823,370

90%

*authors’ calculations of payroll taxes (OASDI, Old-Age, Survivors, and Disability Insurance) are based on IRS and SSA data

How can that be? Well, federal income taxes are still progressive—taking a higher percent from higher income earners—even after all the efforts to make them flat. And most Americans have had no significant after inflation wage increases since the early 1970s. At the same time we’ve seen redistribution of income (and wealth) of Biblical proportions toward the top. In recent years, toward the toppest of the top. At the current pace of redistribution, it won’t be long before all of us not only work for the richest Americans, but we’ll be paying them for the privilege! In an excellent piece a few years ago, Dean Baker showed that for stock markets to continue to rise at the recent pace of growth, wages would actually have to decline to negative territory (workers pay employers). Hey folks, it’s not as far off as you might think.

Now, to be sure—and as other analysts have pointed out—Romney’s statement about taxes shows just how out of touch he is. We all remember President Bush, Sr.’s shock at discovering zebra stripe readers in grocery stores. Romney is even more clueless. He, apparently, does not realize that the federal income tax is just one small fraction of the taxes that hit American households. The thing is, most other taxes are regressive—higher rates on lower income people.

In fact, almost all Americans—regardless of income—pay payroll taxes until they retire.  The rich pay very little in payroll taxes even as they take almost half of total income, while the bottom 90 percent pay 90% of the total payroll tax bill (Table 2). That is, the top 10% of earners—Romney’s constituency—pays just 10% of payroll taxes in spite of their sky’s-the-limit earnings. The rest of us, the bottom 90%, pay 90% of those taxes. And for most of us, the payroll tax is much more burdensome than the federal income tax.  It is no surprise then that Republicans loathe payroll tax relief.

Table 2.

INCOME CLASSES income share income tax OASDI tax
2009 share share*
Top 10 percent

45%

70%

10%

Bottom 90 percent

55%

30%

90%

*authors’ calculations of payroll taxes are based on IRS and SSA data; OASDI (Old-Age, Survivors, and Disability Insurance)

There are two things wrong with Romney’s siren song “income tax cuts for the job creators.” First, the job creators are the bottom 90% – the consumers, those of us who spend nearly all of our income on real goods and services and hoard very little of it. Without spending there are no sales; without sales – there are no profits; without profits – there is no demand for workers; without demand for workers – there is no job creation; and without job creation – there is no recovery!

Second, if consumers are the “job creators” then it is them who can benefit most from tax relief, which clearly means payroll, not income, tax relief. Federal income tax relief goes to the top; payroll tax holidays benefit the bottom 90%. But elites reap no benefit from OASDI tax cuts and Romney knows this all too well. That is why they harp on this all the time, favoring income tax relief while arguing that payroll tax relief bankrupts government.

Note that it is impossible to avoid paying various other regressive taxes – sales taxes, various excise taxes, property taxes (including taxes on the value of autos), and an endless list of fees to government (check your cell phone bill and your airline ticket). Undoubtedly, Romney never sees the tax bill for all this as he’s got his personal assistants, lawyers, and accountants to handle these matters. The rest of us pay, pay, and pay.

Even if our incomes are too low to be hit by the federal income tax.

Romney’s statement appeared to be based on a similar claim made by conservative economist Niall Ferguson. As Matthew O’Brien of the Atlantic responded after a talk given by Ferguson last summer:

It is true that 46 percent of households did not pay federal income tax in 2011. It is not true that they pay no taxes. Federal income taxes account barely account for half of federal taxes, and much less of total taxes, if you count the state and local level. Many of those other taxes can be regressive. If you take all taxes into account, our system is barely progressive at all. But why do almost half of all households pay no federal income tax? Because they don’t have much money to tax. Here’s the breakdown from the nonpartisan Tax Policy Center. Half of these households are simply too poor — they make under $20,000 — to have any liability. Another quarter are retirees on tax-exempt Social Security benefits. The remaining households have no liability because of tax expenditures like the earned-income tax credit or the child credit.

Further, it makes no sense to just concentrate on one side of the ledger—taxes—while ignoring who really benefits from government spending. Yes it is true that lower income people receive food stamps—and the number is booming not only because Wall Street destroyed the economy, but also because the legal minimum wage is far too low to feed a family even if the bread-winner works full time.

Just whose fault is that? Well, mostly conservatives who block minimum wage hikes.

In addition, there is Social Security. However, in spite of what Romney wishes to imply, almost all Americans eventually receive Social Security—and payments are linked to earnings so higher income workers receive bigger retirement checks later.

Are all past, current, and future Social Security recipients lazy deadbeats, not worthy of Romney’s attention? In that case, he’s not writing off 47% of the population, but rather double that—upwards of 95% who are now, or will in the future, collect benefits.

Just what kind of a President would rule in the interest of a couple of percent of the population—presumably all trust fund babies who never had to work a day in their lives? Perhaps one who was a trust fund baby, himself? One with a golden shoe in his mouth?

And, of course, even the trust fund babies benefit immeasurably from Uncle Sam’s generosity. Romney seems to vaguely recognize that living in America provides huge advantages (in his talk he alludes to this when comparing the situation of Chinese factory “girls” to his own lifestyle). We could of course refer to our government-supported educational system, our public infrastructure, our system of laws and regulations, and all sorts of additional benefits provided by all levels of government.

But we could also get a lot more specific and point to government spending that goes directly to our entrepreneurial class. As just one example, fully 14% of federal government spending goes directly to private contractors—and they are getting mighty nervous about all this talk of slashing government spending.

And who do you call when the private sector screws up royally—for example by causing a global financial crisis? Well, Uncle Sam of course—which provided $29 trillion (you read that correctly) in funds to bail-out Wall Street. Romney, himself, needed a government bail-out while running Bain.

Now here’s the bigger take-away. In Romney’s view, the bottom of the population in terms of federal income tax payment—which is not 47%, but rather 90% of the population as we’ve shown above—is not worthy of concern. They’re all lazy dependents, living off entitlements. As President, he won’t worry about them. He will be the President of the top 10%, or maybe 20%–depending on where he finally decides to draw the line. Those with incomes high enough to warrant a high federal income tax bill.

What kind of Democracy is that?

Well, remember the poll tax? Remember the restriction of voting to the propertied members of society? Take a look at what conservatives are trying to do right now to limit access to the ballot box.

It is rule by the elite—Plutocracy.

And that is exactly what our One Percenters not only prefer, but also see for our future.

Citigroup made quite a stir with a report it prepared for its investors back in 2005—during the height of the discussion about President Bush’s proclaimed desire to create an “ownership society”. Citigroup called it a “plutonomy”. The main argument of the report was this:

The World is dividing into two blocs—the Plutonomy and the rest…In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie.

Romney’s their man. He’s the Manchurian candidate of the plutonomy run by the true ownership class with a natural right to rule.

It is becoming increasingly clear that Romney as well as the Vice Presidential candidate Paul Ryan are continuing the “reforms” associated with Bush, Jr’s “ownership society”. As the Cato Institute’s David Boaz explained, “People who are owners feel more dignity, more pride, and more confidence. They have a stronger stake, not just in their own property, but in their community and their society”. Owners have a permanent stake in America that “renters” and transient “users” of resources do not. Public ownership of resources, or public provision of services, encourages abuse—as in Garrett Hardin’s “tragedy of the commons”—and, worse, removes the incentive for individuals to behave in their own long-term interest. The uncertainty associated with relying on publicly owned and provided services arises from the fact that politicians can (and do) change the rules regarding access to them. This reinforces the short view and a lack of responsibility.

Hence, only private ownership can empower individuals and provide the discipline and real freedom to induce Americans to take control of their health care, education, and retirement. In an important sense, the policy transformation envisioned would remove most of the remaining vestiges of New Deal programs that were designed to protect Americans with little wealth from the market.

Social Security is, of course, the most visible of President Roosevelt’s legacies and therefore an obvious target of those advancing “the biggest political idea since the New Deal,” as James Glassman puts it. However, the ultimate goal of the most fervent “ownership” proponents is to loosen all public safety nets as well as all public management of resources. In their view, the primary role of government is to encourage ownership, and through this, individual responsibility, which is supposed to promote the interests of individuals as well as those of society as a whole. Proponents claim that misguided government policy is a major barrier to ownership by society’s downtrodden as it “coddles” them with “entitlements”.

Implicitly, government is to operate in the interests of the owning class—a class that should expand as these reforms are implemented—which means that it may have to side with owners against the nonowning, “transient” classes. This perspective has a long pedigree. The father of economics, Adam Smith, proclaimed: “Civil government, so far as it is instituted for the securityof property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all”.

John Locke expressed the same sentiment: “Government has no other end but the preservation of property”; and Locke’s editor quotes James Tyrell to the effect that the “main end of [government] is to maintain the Dominion or Property before agreed on”. Even clearer was Gouverneur Morris: “Property was the main object of Society. The savage state was more favorable to liberty than the Civilized; and sufficiently so to life. It was preferred by all men who had not acquired a taste for property; it was only renounced for the sake of property which could only be secured by the restraints of regular Government”.  [Citations for all quotes here on the ownership society can be found here]

This stance was advocated by other propertied framers of the Constitution, including the more moderate James Madison, who argued, “The first object of government is the protection of the different and unequal faculties of acquiring property.” While Madison also recognized the importance of protecting the rights of people, he put the rights of property first, because he feared that in America the majority might tyrannize the wealthy few—that is, the best government would be one “ruled by propertied elites and insulated from direct popular control.” In this view, property is not only the origin of society and the reason for government, but also a hallmark of civilization.

The push for an ownership society by President Bush and the neocons must be placed within this broad historical and ideological framework. Government policy ought to promote the interests of owners, who will act as responsible stewards of privatized resources, while protecting the owning classes against the nonowning classes, who tend to make excessive demands for entitlements and legal protection. The ownership-society movement represents a conservative reaction to what many see as the erosion of the rights of the propertied over the past two centuries.

If the reformers succeed, one possibility is that government policy would increasingly be directed by and for the owners, for, as Gouverneur Morris explained more than two centuries ago, a primary (if not the primary) purpose of government is to protect the property of the owner class. If inequality rises, this class will shrink, reducing the moral justification for protection of property even as the need for protection of property rises.

In truth, the contemplated reform of our modern neoconservatives may not simply turn back the clock to the good old pre–New Deal days of 1932. It could take us a good part of the way back to 1776, when citizenship was literally equated by some founding fathers to property ownership by white males—and when the idea that government ought to intervene to provide safety nets and entitlements to the nonowning classes was far from public discourse.

In any case, the Madison/Morris view did not go unchallenged. While Franklin and Jefferson also recognized the benefits of ownership, they worried about equity. Franklin believed that “all property beyond that required for the ‘Conservation of the Individual and the Propagation of the Species’ could be enjoyed only on terms that the public might set through its laws. . . .”  Jefferson, too, maintained that holders of property, who owed all of its safe enjoyment and much of its title to ‘social law’ rather than nature, could not raise absolute claims that denied society what its welfare required.” More importantly, Webster argued that, since “property is the basis of power,” only “a general and tolerably equal distribution of landed property” could justify a republican form of government.

Thus, not only did these founding fathers reject the notion of an inviolable right to enjoy the fruits of unlimited wealth, but they also recognized that preferential treatment of property rights by government could only be justified if property were more or less equally distributed. In the framework of today’s debate, the justification for many of the “reforms” advanced by advocates falls flat in the face of the evidence that wealth is highly unequally distributed—unless a very strong case can be made that these policy changes would quickly lead to a significant improvement of that distribution.

And that is where the Global Financial Crisis comes in. Not only was it largely caused by the dismantling of the New Deal reforms, but it helped immeasurably in the ownership society’s goal of moving all wealth to the rightful owners—those at the top of the income distribution—to create a plutonomy of rich folks with wealth that would require the money management services of the likes of Citigroup and Bain Capital.

We thus come full circle to Candidate Romney’s disgust with the bottom of the income distribution—the bottom 90% or more who do not own enough wealth to require his firm’s services, and who do not earn enough to pay significant federal income taxes.

They are not rightful participants in our kind of “democracy” envisioned by the plutocrats at the top—those who prefer one dollar equals one vote, over one person one vote. If you do not have enough income to pay federal income taxes, you will not be considered by the ruling class. You will not be served by our “public servants”.

It is ironic that our conservatives always react in horror at the “class warfare” supposedly waged by workers against the owners anytime they suggest that wages and working conditions ought to be improved or that consumers ought to be protected from abuses by Wall Street. Of course, as a corporate leader, Romney engaged in “class warfare” all the time—downsizing the workforce, moving jobs abroad, or closing down factories altogether in an effort to cut the wage bill.

And now we see him engaging in an even more pernicious form of class warfare—arguing that the “little people” do not warrant representation in Washington. They just aren’t entitled to representative democracy.

18 Responses to Romney: The Little People Don’t Pay Taxes

  1. Although poorly stated, I believe Romney meant he doesn’t think it’s worth the effort to go after voters he has no possibility of reaching. He put that number of voters at 47%. There are just as likely the same number of voters Obama has no possibility of reaching. Obama has not been caught on a hot mic articulating it. Romney has previously stated he’s not worried about the very poor. They are taken care of by the government safety net. But it’s pretty obvious he is looking after the “givers”.

    I agree with this entire post, but I do not hesitate to include Obama and the vast majority of Congress in the defense of plutonomy.

    • Chew: His comment goes way beyond that. It is not just votes and funds that he is referring to. Read his statement: “I’ll never convince them they should take personal responsibility and care for their lives.” That is disgust. The bottom half offends Romney’s sensibilities.

      I do agree with you that the Dems in Washington are, unfortunately, no better on Crony Capitalism. They are defending Plutonomy tooth and nail.

      • I have some weird optimism that I know you won’t agree with. But I think Romney will be more willing to spend if he gets elected with a Republican congress. Too much will be on the Pentagon budget, but it will be stimulative. It may even be more than enough to go beyond “muddle”. There may even be fiscal transfers to states to protect the Muni bonds.

        That being said, I really don’t like him. He is more concerned with being on the list included in 6th grade history books, than really helping the 90% you are writing about today.

        Good stuff at Columbia, by the way. Kudos to who ever lined up the series. Looking forward to the rest of it.

  2. George Balella

    Wow great essay. So glad I found your web site. Being a lay person I have, through years of self learning, discussion, research and debate come to the conclusion that the economics profession has foisted onto the world the largest fraud of any profession ever. And as of yet so few people are even aware of this. Years of study have bolstered my ability to defend evolutionary theory against the creationist and climate change evidence against the cynics ( often economist of the fundamental variety) …. this fraud however has money behind it and massively effects the way our societies and world works in a negative way. As modern economies at the turn and mid parts of the 20th saw great gains in productivity the assumption was in the near future we might all be working 20 hour weeks with incredible amounts of leisure time. If that was ever a possibility it has been lost these last 50 years by the Return of Kings with unimaginable concentrations of wealth. They have restructured thier castles, palaces, vassals, lords and defenses so well disguised and integrated into the economy, society and government they are not overtly noticed or conspicuous so as to minimize revolt. The top 400 Kings in our country just saw their wealth go up 14% in this depressed economy to a record $1.7 trillion dollars and still they have many commoners fighting for them. Your message needs to get out. It gives me hope that it could be the spearhead of a peaceful intellectual revolution that leads to massive advancement of civil society.

  3. What is depressing is that Romney has more than 10% (1% ?) of the vote. Deteriorating public education? Some sort of natural cycle? In any case, I’m glad people like Professor Wray continue to try to educate. It would be nice if he had a louder megaphone (say appearance on a network TV program … we may have to wait a while).

  4. Very well done piece, nailing the increasingly hard move toward plutocracy

    It’s going to be very hard to stop the drift toward plutocracy over the next few years. Even if the Ds win this time that won’t stop it. A D victory will open the way to a Bowles-Simpson type “grand bargain”, which we will then have to roll back in future elections.

    OWS growth is essential to turning the political system around. But it’s not enough. We also need a new institutional structure like the one outlined here, here, and here, to provide a channel for continuous self-organization by OWS and other bottom-up political movements.

    • We need a new movement and/or party. It’s not enough to focus on just a handful of economic policy issues and reforms. We need a clear social contract-based agenda for progressive change and an ambitious but achievable vision of a possible society based on full employment, mutual obligation and social solidarity, resurgent democratic institutions and governance, renewed public spirit and public sector activism, belief in progress, shared responsibility for and access to the fundamental social goods, a renaissance in our cultural life and commitment to education, and a commitment to broad social and economic equality. Stay tuned.

  5. very great article!

  6. That tax statistic always seems to be misused. When you look at the total tax an individual pays based on income you can see that everyone chips in. In fact, the top 1% pay less in total tax than the lower 20% of earners and close to what the middle 50% pay. Even the lowest tiers pay a total yearly tax of 15% of income. It would be nice to see media publications use those statistics more often as the top 1% pay a total tax equal to their share of total US income.

  7. “Uncle Sam … provided $29 trillion (you read that correctly) in funds to bail-out Wall Street.”

    Was this approved by the legislative process in the same way that the ARRA (American Recovery and Reinvestment Act) was?

  8. Have always maintained the soundest way to avoid income taxes is to avoid income.

    Have managed to succeed beyond my wildest expectations.

    And still living exceptionally well.

  9. Its all a ruse & a form of control to keep the majority in its place. The fact that entitlements “trickle up” rather than “trickle down” is obvious…For example we have street level drug addicts, which purchase/sell drugs through the black market which has been created by overprescribing narcotics = wealthy heathcare providers = pharma profits etc.. But we punish the victims and complain about “paying taxes” for rehab/law enforcement/social services. A corrupt healtcare system reaps the wealth from the system while the victims lapse into dispair & hopelessness/poverty. .. A prime example of how poverty creates conditions for extreme wealth creation through corrupt government policies.

  10. Frederico Carvalho

    Stupendous piece, Professor Wray!
    In my view you and Professor William Mitchell are the ones that most deserve the Nobel Prize in economics.
    But then, unfortunately, there are the Swedish top bankers closing the road.

  11. It looks that Mit told the truth at the wrong time, which has become something destablising his election campaign.

  12. Pingback: A Meme For Money, Part 4: The Alternative Tax Meme - New Economic Perspectives

  13. Superb post, sadly the 47% thing pre dates Romney a bit. When the recession first hit I was in college, this would’ve been Fall 2008. After Obama was elected (this was against McCain keep in mind) a conservative prof of mine bemoaned how over half of Americans paid no income tax. I guess at the time we were even poorer still!
    This outraged a few Republican students, and only kid was smart enough (I wish it was me but sadly not) to say “Well isnt that because they are poor and a recession hit? And there are other taxes.” To which the prof was pretty much silent.

    On Fox some woman, I draw a blank, was outraged that half of Americans “pay no tax” and how “simple” it could be to eliminate debt, just tax those bums! Even if someone believes those people should pay fed income tax I was pretty shocked they thought it would “end the deficit”
    Sorry, I rambled but point is even before Romney threw his hat in this meme has existed.

    I hated how the few use government to better themselves, and especially at our expense but that doesn’t seem enough for them, they really do seem to DISLIKE us regular folk. Perhaps they have become so secluded in their own world they really do believe we’re all not billionaires like them out of laziness!

    I’ve wanted to be an economist for a year or two now, and still want to, but I am quite shocked to have learned what the uni education is like…and how flawed mainstream thought is.
    Keep up the work, hopefully maybe one day enough people can bring this stuff to light.