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The Great Big Fat Tax Lie

Anyone descending to Earth from Mars to view last night’s presidential debate would come away with the impression that rich people are free loaders and swindlers who pay no taxes, while the poor/middle-class shoulder the lion’s share of the tax burden.  Obama incessantly repeated the fallacy that the rich don’t play by the rules.  Anyone who lives on planet Earth should be asking, “what planet do you live on, Mr. Obama?”

Unfortunately, instead of uprooting the entire premise related to the demographic share of the tax burden, Romney played defense and swore profusely that he would never cut taxes on the rich.  That’s not exactly something conservatives would like to hear.

The problem with the tax issue is that there is a wide bifurcation between the public perception of the tax burden and the reality of who pays taxes.  Our system of withholdings is distorting the public perception on the entire tax issue.  Withholdings give many people the perception that they pay taxes, even when they don’t.  In fact, they often enjoy a negative tax liability.  For example, a tax filer might have $6,000 taken out of his pay check throughout the year, but receive a $10,000 check in refundable tax credits at the end of the year.  That person actually makes $4,000 from the system and still receives full Social Security benefits (despite the fact that the refundable credits zeroed out that contribution), yet he would think that he pays taxes.

On the other hand, many people who pay a significant amount in taxes don’t appreciate how much they pay.  They never factor in gross pay, and are often ignorant of how much they would earn sans Uncle Sam.  If we would abolish the withholdings process and have everyone pay taxes once a year, we would be looking at a different electorate.  The person in our first example would see that he paid no taxes and actually got a $4,000 check.  The person in the latter example would have to write one big fat check at the end of the year.  Withholdings truly is a game changer.

As we’ve noted before, the reality is that the rich pay a grossly disproportionate amount in taxes (see tax foundation data), even under the full Bush tax cuts.

Income Level

Share of AGI

Share of Tax Burden

Top 1%

16.90%

36.70%

1-5%

14.80%

22.00%

Top 5%

31.70%

58.70%

5-10%

11.50%

11.80%

Top 10%

43.20%

70.50%

10-25%

22.60%

17.00%

Top 25%

65.80%

87.30%

25-50%

20.70%

11.00%

Top 50%

86.50%

97.70%

Bottom 50%

13.50%

2.30%

 

Any further tax increase would raise the burden even more.

Here’s what Romney should have said.  “I know that in your perverted use of deceptive parlance you think that a tax cut is a handout and a handout is a tax cut, but here’s the reality.  The Bush tax cuts have made the tax code more progressive than ever.  What part of ‘the top 1% pay 36.7% of the taxes despite earning just 16.9% of the AGI do you not understand.  Those numbers reflect the burden even after all of the so-called loopholes and deductions.  So what is the proper fair share in your mind?  50% of the tax burden?  60%?  When will it be enough?  If that’s not a text book definition of socialism, I don’t know what is.”

Then, after showing how the rich are shouldering most of the burden of the country’s income tax, Romney needs to illustrate how the middle class – including the 47% – are getting squeezed by the Obama tax.  The regulatory burden and market distorting-policies put in place by Democrats represent the biggest and most regressive tax on those people.  Whether it’s the devaluing of our dollar, green energy mandates, CAFÉ standards, Obamacare, Dodd-Frank, or EPA regulations, Democrats have increased the cost of food, energy, healthcare, and cars – all vital needs that account for a large portion of the “working class” income.

I don’t blame Romney for his performance.  It’s not easy to deconstruct demagoguery in two-minute sound bites when it requires a longer dissertation of facts.  Yet, despite Romney’s defensive answer, he still won on the issue of taxes by 7%, according to the CNN snap poll.  However, this is a lie that has been peddled during every stage of this campaign, and it must come to an end.  We only score points when we’re on offense.  There’s no better way to do that than by uprooting erroneous premises’ instead of agreeing with them.

Cross-posted from The Madison Project

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