Trump may be wrong about the U.S. going socialist…

… AOC may be holding the matches, but the GOP tax reform provided the kindling. 

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Last week, I whined that – though I’m getting a tax refund this year – my income taxes went up in 2018.

I’m ok with that since I conclude that the corporate cuts turbo-charged the economy and the stock market … and my IRA account gains are much larger than my additional taxes.

But, I do have a mega-concern that I started touting way back in 2017 when the GOP tax reform was being crafted, debated and passed.

My mega-concern is the long-run tilt in voting dynamics, in the new age of the Green Dream, Medicare for All and Guaranteed Minimum Income (for those who are unable or unwilling to work).

Let’s start with a flashback…

Remember Mitt Romneys ill-timed observation about “47% of Americans”.

No, they weren’t Hillary’s “deplorables”, they were simply the folks who pay no Federal income taxes.

Well if the GOP tax plan got enacted … the 47% is still alive .. and now on steroids..

image
Source

Let’s drill down on the data…

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Romney was right on the facts … back in 2012, 46.6% of “tax units” (think: people) paid no Federal income taxes … or paid negative Federal income taxes (i.e. got a check in the mail for “refundable credits”).

The improved economy drove that number down to under 45%.

When accosted for favoring the rich, a frequent GOP retort is that “the proposed plan increases the number of Americans who will pay no Federal income taxes. Source

It was estimated that an additional 6 million tax filers would no longer have to pay any Federal income taxes. Source

That pushes the percentage of folks not paying Federal income taxes up to close to 48% … 47.8 to be precise.

And, the trend is pushing that number perilously close to the magic 50% majority mark … the watershed point when folks (think: VOTERS) who pay no income taxes outnumber those who do.

My bet: When the books close on 2018, a majority of American voters will have paid no Federal income taxes.

Why is that a big deal?

The Tax Foundation — a nonpartisan tax research group – has repeatedly warned:

“While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits.

The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.”

English translation: Voting is more rational when everybody has some skin in the game.

And, as Mitt intimated: Getting more stuff is a no-brainer if somebody else is paying for it.

The AOC gang has caught this “free for all” wave … and the it’s not clear to me that there are enough tax-paying voters left to crash the wave.

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P.S. Left-leanesr like to argue: “Yeah, ‘they’ might not pay Federal income taxes but they pay payroll taxes – Social Security and Medicare.”

Beside the point that those are insurance programs and the payroll taxes are, in effect, premiums being paid …. note the last line on the data table above:

Almost 60% who pay no Federal income taxes (26.8% / 44.3% =  60.1%) get more than enough in refundable tax credits (i.e. checks in the mail from the IRS) to more than offset any payroll taxes withheld.

#HomaFiles

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One Response to “Trump may be wrong about the U.S. going socialist…”

  1. Neel Master Says:

    Professor Homa:

    This “controversy” seems to be almost totally an artifact of framing effects. Another way to frame the same situation as you describe above:

    The richest one percent of Americans have 21.7 percent of total income and pay 23.8 percent of total taxes.

    The poorest one-fifth of Americans have 3.3 percent of total income and pay 2.0 percent of total taxes.

    Doesn’t sound nearly as unfair, does it?

    Neel

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