Who’s in the “47%” in Wisconsin?
Data Dispel Misconceptions about the “Takers”
Is it a problem that about 47% of Americans didn’t pay federal income taxes in 2010, during the recession? Does that mean that nearly half of Americans are “takers” and the other half are “makers”?
Those are two of the questions that I would have liked to have heard discussed during the first presidential debate last week. In addition, I would like to hear candidates talk about who “the 47%” are and what their composition tells us about the federal tax code and options for changing it.
A state-by-state analysis of 2009-2010 Census Bureau data sheds light on which Wisconsinites don’t owe federal income taxes, and it dispels the suggestion of some politicians that a large percentage of Americans have been getting a free ride.
Based on data from our colleagues at the Center on Budget and Policy Priorities, the chart below shows that nearly three fifths (59%) of Wisconsinites who don’t have to pay federal income taxes are workers who pay significant amounts of payroll taxes, but don’t make enough to owe income taxes. Despite their low incomes, they also pay federal excise taxes, as well as state and local taxes, and their total tax rate is often higher (as a percentage of their income) than that of people whose income is primarily generated by their wealth.
Almost a quarter (24%) of the Wisconsinites not paying federal income taxes consists of people who are elderly, most of whom were probably paying income taxes for much of their lives. Calling them “takers” and implying they are mooching off the “makers” is wrong both rhetorically and factually.
Among the rest of those characterized as “takers” are many people who aspire to be federal income tax payers, including students and unemployed workers.
Perhaps none of this would be relevant if the reference to the 47% had simply been a one-time statement by a single politician. However, many conservative candidates have made much the same point – causing a Wall Street Journal reporter to write in an August 2011 blog that the contention that too few people pay income taxes is “a new orthodoxy.” That sentiment continues to be an argument used by some of the conservatives who argue for a flatter income tax, with fewer deductions and tax credits for low income workers.
As the Wisconsin Budget Project noted in an issue brief last month, a flatter, less progressive state income tax would exacerbate the problem that low- and middle-income Wisconsinites already generally pay a larger percentage of their income for state and local taxes than the highest income state residents.
As the debate about taxes continues, let’s take a close look at the 47% of Americans who have been characterized as “takers,” and let’s carefully review the actual impact of proposals that some politicians are offering to broaden the income tax base. For the numerous Wisconsin workers who would probably love to earn enough to owe income taxes, let’s also consider policy options that would improve their compensation, such as increasing the minimum wage.