The 44 Percent

From the Wall Street Journal:

Now we know: 95% of Americans will get a “tax cut” under Barack Obama after all. Those on the receiving end of a check will include the estimated 44% of Americans who will owe no federal income taxes under his plan.

In most parts of America, getting money back on taxes you haven’t paid sounds a lot like welfare. Ah, say the Obama people, you forget: Even those who pay no income taxes pay payroll taxes for Social Security. Under the Obama plan, they say, these Americans would get an income tax credit up to $500 based on what they are paying into Social Security.

Just two little questions: If people are going to get a tax refund based on what they pay into Social Security, then we’re not really talking about income tax relief, are we? And if what we’re really talking about is payroll tax relief, doesn’t that mean billions of dollars in lost revenue for a Social Security trust fund that is already badly underfinanced?

I googled for some statement by the Obama campaign that FICA taxes will be reduced, and found nothing. Maybe your luck will be better, if you want to look. Possibly the genius who wrote the WSJ editorial has never looked at a standard paycheck and doesn’t realize that withheld income taxes and withheld FICA taxes are two separate line items and not the same thing. Can anyone else explain what this guy is talking about?

Further, it’s important to understand that in McCain World, payroll taxes are taxes paid by the employer and not the employee. In other words, the income taxes withheld from paychecks are not being “paid” by the employee. Hence, workers whose taxes are paid through payroll taxes do not actually pay taxes.

That’s where they’re coming up with “the estimated 44% of Americans who will owe no federal income taxes.” They “owe” no taxes because taxes are withheld from their paychecks, and they have no other income to declare.

[Update: The Anonymous Liberal says these are people who don’t earn enough to pay income taxes. Maybe, but are we talking apples and oranges? Is Obama talking about 95 percent of wage earners getting tax cuts, as he says, while McCain is talking about 44 percent of all Americans? I’ve never seen a paycheck so small that there wasn’t a teeny bit of income tax taken out of it.]

And in the minds of the conservative elite, such people do not deserve tax breaks. Giving them a tax reduction is welfare, since they didn’t pay taxes, anyway. And, in fact, a few days ago, some right-wing TV bobblehead actually said that most average-income bus drivers, teachers, and autoworkers “don’t pay any taxes.”

Of course, most working people don’t think that way. To most working people payroll tax deductions are taxes they pay. But to McCain, giving most working people a tax break amounts to “welfare,” because, you see, they don’t pay taxes. That makes a tax break for them a “transfer of wealth” and not a tax break.

A number of rightie bloggers have picked up this argument and are running with it, including Betsy Newmark, who says “Barack Obama is planning to give a tax break to [people who] don’t pay income taxes.” Betsy Newmark is a teacher. Very likely Betsy in the 44 percent.

And she doesn’t know. She assumes the “44 percent” are some other people, not her. As Atrios says,

I’m really never quite sure who this “don’t pay any taxes” stuff is aimed at. Though, thinking about it just this second, maybe I do. Basically everybody pays taxes. So you when you’re talking about giving free money to people who don’t pay any taxes, that must be somebody else because, you know, I pay taxes.

I suppose that works.

That’s exactly it. It must be some other bus divers, teachers and auto workers who don’t pay taxes. Or maybe the 44 percent are people who don’t work. But Obama specifically says his tax cuts are for working people. So that can’t be it.

Don’t any of these people, you know, think?

18 thoughts on “The 44 Percent

  1. Think??? The republican party is now just a mob of people just yelling stuff at anyone who will listen. Who is the leader of the republican party?? bush?…he is the decider, mccain?…he is not even in charge of his own campaign, palin?…please, she only speaks when told what to say, lets not forget cheney?…he may be the only independent thinker of the lot but, can you find him and would he tell you anything if you did find him. In sum, the republicans have let bush/cheney destroy their party and they are so mad. So mad that sometime during the next 2 weeks one of them will blame the sun that did not shine for their failures.

  2. See Media Matters:

    There’s a helpful link to a graphic based on CBO data that shows the breakdown of total & income taxes by quintile in 2004 and 2005.

    In 2004, the lowest quintile makes just $15.8k before taxes, pays -6.2% income tax (this is the EITC — earned income tax credit). You can try it yourself if you have TaxCut or TurboTax — you get a federal tax refund at this low of a wage. This is about $7.60/hr for one wage-earner working 40hrs / wk all year.

    The next quintile makes up to $37.2k, and also gets a refund of federal tax: -0.9%.

    So we’re up to 40%, and yes, no income tax paid. 40% of what? I believe tax returns, so single & married households would be my guess.

    But it’s also important to note that the total federal tax rate for those two quintiles are 4.3% and 9.9% — everybody pays tax, even though conservatives seem to not like it (??).

    I also don’t know if this is what they should get, or what they did get — participation in EITC is not automatic, and I don’t know the participation rates are.

    Bottom line, the numbers are totally believable as far as the amount of people that pay no income tax. The dishonesty here is in considering “income tax” the ONLY tax in some sentences, but not others (which is the current McCain strategy).

  3. Gah, when I said “you get a federal tax credit at this low of a wage”, I should have said “you get an INCOME tax credit …”.

    Great, suddenly I’M confusing income vs all taxes. **shakes fist**

  4. Come on Maha get with the program.

    This latest line is just a continuation of the Fannie, Freddie angle. The word welfare is code for those lazy niggers getting a handout. I the wingnut world a taxpayer looks like “Joe the plumber” white as white can get, while welfare recipients look like Michelle Obama and the rest of them, that one.

  5. I’m not sure of the exact question(s) you’re asking, but I think I can answer some general stuff. I handle the payroll for our (very) small busines.

    Here are the basics for taxes withheld from gross pay and paid to the federal gov’t: Fed. Withholding Tax (FWT; this is “income tax” – a variable rate paid entirely by the employee based on income levels), FICA (Social Security; currently 12.4 % of gross, but only 1/2 is withheld from and paid by the employee. The employer pays the other 6.2%. Salary in essence costs more to the company than you see even in your gross salary line.), and Medicare (currently 2.9% of gross, but again only 1/2 is withheld from and paid by the employee. The employer pays the other 1.45%)

    It is certainly possible to have your ‘withholding’ lowered to zero–in essence not prepaying any of your income tax. It’s based of the number of allowance you declare on your W-4. But if you underestimate the amount of tax for which you’re liable, you could be hit with penalties and interest.

    Beyond all that, I believe low income earner under certain thresholds are eligible for the Earned Income Tax Credit. I’m not very familiar with that but I think basically cancels out the income tax from salary below the threshold, mean those folks don’t pay any income tax. However, they might be due a refund if FWT has been withheld from their paychecks.

  6. okay, now I’m thinking about another angle here: The phrase “owe no federal income taxes.” I find it hard to believe that 44% of Americans *PAY* no income tax. But I certainly find it believeable that 44% ‘owe’ no income taxes on April 15. That’s because enough (too much) tax is already being withheld.

    That’s usually the case for us. But we still pay thousands in federal income tax.

    As an aside, if 44% of Americans were already paying no income taxes, why the big push in previous years for child tax credits and income tax rebates, etc?!? Because of course, they are paying taxes, they just don’t owe anymore than is already being withheld…

  7. I find it hard to believe that 44% of Americans *PAY* no income tax. But I certainly find it believeable that 44% ‘owe’ no income taxes on April 15. That’s because enough (too much) tax is already being withheld.

    That’s what I’m saying.

  8. I find it hard to believe that 44% of Americans *PAY* no income tax.

    You’d be wrong, if you understand that “Americans” means “households”. I find completely believable the claim that 44 % of American households have an effective income tax rate that is zero, or negative.

    I think you’re not listening to [email protected], who has the data.
    I also think that you’re showing that you don’t understand the size of the working-poor class.

    Let me recap what pseudonoise said:

    The bottom 20 % of households get back everything withheld for federal income tax, and also get extra money back from the EIC, so their net income tax rate is negative, – 6.2 % of their taxable income. They get maybe $500 to $900 more back than was withheld. They pay less than no income tax.

    The next quintile ditto, except the effective tax rate is -0.9 %.
    This 20% of households also, on average, pays slightly less than no income tax.

    And this is a measure of how dire our economy has become for those at the bottome, and how blind even we liberals are to that situation — all those waiters and part-time Walmart clerks and hamburger-flippers make so little that they pay no income tax, and yet it hardly matters, because they have so little income to tax.

  9. I find it hard to believe that 44% of Americans *PAY* no income tax. But I certainly find it believeable that 44% ‘owe’ no income taxes on April 15. That’s because enough (too much) tax is already being withheld. -lutton

    That’s what I’m saying. -maha

    This is not correct. This has nothing to do with the bill due April 15th.

    Whether or not one over- or under-withholds has nothing to do with this issue.

    McCain is correct that ~45% of taxpayers pay OR OWE no income tax.

    The CBO charts do not take withholding into account, they are the total tax, and they clearly show that at least the 40% of Americans with the least amount of income have negative income tax:

    The vehicle for getting negative income tax (to offset other Federal taxes) is the EITC, and it will rebate income tax for at least 40% of Americans; I’m guessing that the break-even point of 0 income tax at 45% is factually correct. Yes, withholding can be jiggered around throughout the year but that has zip to do with the CBO numbers — they only care about total tax for the year.

    To rephrase as some true/false claims:
    “45% of Americans pay no (or negative) income tax. -McCainnites” TRUE. CBO data shows this (check my link).
    “McCain is talking about the difference between withholding and tax owed.-maha & lutton” FALSE. He’s factually correct; 0 or minor part of their total tax obligation.

    Again, withholding has nothing to do with this.

    I’m sorry if I’m exasperated here, but I think it’s important to get these things right. I think the reason that politicians can lie so easily about taxes and get away with it is that many people don’t understand how they work.

  10. I think I put a “<0” and it swallowed my post. *sigh*. Anyway, what got clipped was that McCain’s lie here is the following:
    “Only 45% of people pay income tax, so how can Obama claim to cut 95% of peoples’ taxes?” The first clause is referring to income tax, and the second clause refers to ALL FEDERAL TAX. That’s the fallacy — income tax is a federal tax, but not all federal tax is income tax.

    Attributing this to withholding/Apr 15 is a non sequitur.

  11. “Only 45% of people pay income tax, so how can Obama claim to cut 95% of peoples’ taxes?”

    My understanding is that 95% of taxpayers make under $250,000,00 a year, and that their tax burden (liability) would be reduced. And that anybody making over $600.00 a year has a tax liability to some degree. Whether or not 45% can overcome their tax liability, and not have to pay because of standard deductions or itemized deductions, or credits doesn’t have any bearing on their tax liability( the amount they should pay). The liability remains the same whether people pay or not. Cutting income tax rates would reduce the tax liability for the full 95% of taxpayers whether they’re payers or not.

  12. I see I made an error on the percentage figures..regardless they aren’t pertinent. The only figure that is relavent is the $250,000.00 figure. But my point remains the same. McCain is just cluttering up people’s heads with confusion and doubt.

  13. Having taxes withheld on paychecks is not the same as paying taxes. Taxes withheld on income too low to qualify for any tax are simply refunded at tax time once a return is filed. So those people aren’t being taxed even though they are subject to withholding. Plus, it is possible that they might get an additional refund but it wouldn’t amount to much more than, if as much as, the $600 “rebate” that was sent out earlier and that some on the Right are arguing ought to be done again.

    Plus, let’s also make clear in all of this that at the $250,000 level it is the amount of taxable income not gross income, that matters and the difference between those two figure could be significant, especially for a small business with lots of expenses and overhead.

    But the bottom line is all that really matters in a political discussion. In general, those making less than $250,000 a year in taxable income will pay less or no more in taxes under Obama than under McCain.

  14. Possibly the genius who wrote the WSJ editorial has never looked at a standard paycheck and doesn’t realize that withheld income taxes and withheld FICA taxes are two separate line items and not the same thing.

    Wouldn’t be surprised, esp now that the WSJ is part of wacky Murdoch World.

    The comments above make one thing clear: the McCain campaign counts on confusion and disagreement as to the facts behind and interpretation of its pronouncements. I’m still not sure wtf they’re talking about with their health insurance taxing scheme. Every pundit explains it differently.

  15. Isn’t the key point that 95 percent all all wage earners will get a tax cut in the event that they are paying taxes? Conversely, only 5 percent will be subject to a tax increase. What this emphasizes is that the lower 95 percent have nothing to fear in the way of higher taxes.

  16. Virginia: it’s actually that:
    95% get a tax cut
    3% have no change
    2% have their taxes raised

    Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s. Obama will ask the wealthiest 2% of families to give back a portion of the tax cuts they have received over the past eight years to ensure we are restoring fairness and returning to fiscal responsibility. But no family will pay higher tax rates than they would have paid in the 1990s. In fact, dividend rates would be 39 percent lower than what President Bush proposed in his 2001 tax cut.

  17. The Obama plan does include multiple refundable tax credits. They are as much “socialism” as the EITC. Funny how the Republicans never thought *that* was socialism, but find any expansions of the idea to be socialism. I wonder if it’s because EITC is incredibly popular (so speaking out might hurt them) but attacking Obama might provide an advantage.

    No, wait, that suggests that the Republicans are all a bunch of hypocritical manipulators, the kind of people who would suddenly decide, in June of an election year, that offshore drilling was the One And Only Way to save us from Foreign Oil And High Gas Prices. And wouldn’t that be unimaginably silly?

  18. There has got to be a way to capitalize on this kind of thinking. If you told Americans that the GOP doesn’t think the taxes that are withheld from each and every check they get counts as taxes that could be subject to tax cuts, they’d be pissed. If you don’t have to write a check on April 15, no matter how much was withheld, they think you have paid NO taxes.

    That’s asinine.

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