Consultant’s View on Romney’s Comment: 47% of Americans Don’t Pay Income Tax

By | September 20, 2012

Taxes are a universal complaint regardless of where you live. It is the stuff of bar conversations, news reports and Presidential debates. It is mentioned in the bible and let’s not forget that one of the twelve disciples was a tax collector (Matthew).  Okay, Mitt Romney, here we go. . .

Is it true 47% of Americans don’t pay income taxes? After the Mitt Romney comment that almost half of Americans do not pay income tax, the Economist published this helpful table to give some context. Of the 47% of Americans who do not pay income tax. . .

  • 28% of them do pay payroll taxes (even if they don’t pay income taxes)
  • 10% are elderly
  • 7% have income of less than $20K
  • The % of Americans not paying income taxes has increased from 15% in 1985 to almost 50% currently during by Democratic and Republic administrations

47% Not Paying Income Tax

Are US taxes high compared to other countries? As an American who recently filed his taxes (yes, I got the extension to August), I don’t like paying taxes; Don’t feel like I am getting my money’s worth – but that is a different discussion.

Looking at this Economist comparison of the effective tax rates paid by people earning the equivalent of $100K annually in different countries, the US has one of the lowest rates. . .

  • Belgium, Greece, Germany, and France have the highest effective tax rates
  • India and Brazil (both developing countries) also have high rates
  • Of the 16 countries shown, only Russia and the UAE had lower rates

Global Tax Rates

Are the wealthy in the US paying their fair share? In his Wall Street Journal article, David Wessels provided a lot of the data for readers to make up their own mind.  In an interview, he noted that “fair share” is a completely subjective assessment. After looking at these four charts, what do you think? .

  • #1: The top 5% have increased their share of wealth, but also increased the amount of taxes they pay.  They earn 25% of the wealth, and pay 40% of the federal taxes
  • #2: The bottom 40% earn a smaller portion of the pie, but also pay dramatically less (%) in federal taxes.  Almost nothing
  • #3: Most Americans pay less in fed taxes than they did in the early 80s (Regan era)
  • #4: Inequality (rich getting richer, poor getting poorer) is rising, but government benefits and taxes are dampening those effects.  Somewhat progressive.

Who Pays TaxesDoes everyone hate the rich? As a bit of a libertarian at heart, I believe that those who add value in the market place deserve their success and wealth. All Americans deserve equality in opportunity (education, legal protection, access to capital), but what you do with those blessings is completely up to you.  People should be given the same inputs, not guaranteed the same outputs.

  • From this survey, the Australians, Canadians, US and the Chinese seem to agree with me.  The rich deserve their wealth
  • Greeks, Russians, and Turks are most skeptical of the rich

Public opinion on the rich

With so many governments in debt and the increase in the numbers of pensioners, the notion of raising taxes is just as unpopular in the the UK, France, Greece or Germany. More than half of the readers of this blog are not from the US.  Please leave your comments. Do these opinion poll results about the “rich” match your feelings?

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4 thoughts on “Consultant’s View on Romney’s Comment: 47% of Americans Don’t Pay Income Tax

  1. Brandon Smith

    As I say in my house when my kids want to complain about what mom made for dinner, doing homework, how we spend our money, etc… “Decision-makers pay.” I welcome their comments, applaud their leadership and hold out my hand for their wallets. My kids quickly retract all commentary.

    That’s our problem in the U.S. We are promoting the notion that freedom and responsibility are NOT brothers joined at the hip. That one can have one without the other. Being an individualistic culture (and I say that in the best sense) that promotes the values of liberty, freedom and choice, personal responsibility has to be the designated driver. I just don’t see that happening without everyone paying taxes to some degree (and knowing they are paying taxes).

    1. consultantsmind Post author

      Well-said and completely agree. It is a responsibility for all of us to pull our weight and contribute (in this case taxes) to help pay for the types of freedom and services we enjoy. Perhaps income tax should not be a singular metric, after all there are many other types of taxes and ways to “pitch in” for the common good. That said, I know that the trend shown at the top right chart (% of Americans not paying income tax) is a bit disturbing . . . probably because it indicates a larger malaise of unemployment and under-employment.

      Don’t have a recommendation on how to fix the problem, but I know we should not tax the things that we want to encourage (creating income), and should tax the things that we want to discourage (e.g., excessive gas consumption) or have secondary costs (e.g., sugar consumption creating diabetes).

      As as side-bar, was recently in upstate New York enjoying some national parks, and could not help think what an amazing use of tax payer money it was. I would double-down on national parks. Go Teddy Roosevelt.

  2. Michael - NYsalestax.com

    I think it’s caused because residents are getting lower income compared to previous years before the big recession happened. Viewing the diagram, the United States taxes are not high even lower than Europe countries. In addition, currently China is becoming the best destination to open a business so that no wonder US economy is decreasing.

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