Reagan the Redistributor: Check Out the Earned Income Tax Credit

The Obama tax program involves increasing by a whopping 4% the tax rate for those whose adjusted gross income is over $250,000, and reducing taxes on everyone else.

Republicans have rightly pointed out that 40% of American households do not pay income tax -- although they more often wrongly just stop at saying that they do not pay taxes, period. From the second, wrong, statement, they assert that giving money to those who do not pay taxes is welfare, socialism and, now, communism.

Actually, these lower income people do pay taxes -- payroll taxes and medicare taxes that are quite significant. Lest anyone become apoplectic that revenues from those taxes are not part of the budget, think again: the social security trust fund has been making up the deficits in the US budget for decades. If it were not for appropriating the surplus in the social security trust fund, even the Republican Congress would have found it difficult to enact its tax cuts.

But even if that were not true, and that the social security trust fund were indeed in a 'lock-box', the Republicans have a bigger problem: the earned income tax credit ("EITC") that was enacted by Gerald Ford and then re-enacted and expanded in 1986 by... could it be, don't tell me, say it ain't so!... Ronald Reagan.

The EITC uses tax revenues (derived from our progressive tax system) to provide additional income to people below certain income levels under a formula so that it gradually phases out as incomes increases. Qualifying families receive a monthly check from the government.

So, Ronald Reagan was a redistributor. That must mean he was a socialist, even a communist.

That's what happens when you pal around with Mikhail Gorbachev.

Comments

[pennhr]

My comment quoting Theodore Roosevelt's April 1906 speech was cut off in mid-sentence. The quoted portion concludes: " . . . and to see that they in their turn do justice to the public at large." According to today's Republican standards, President T. Roosevelt, Sen McCain's hero, qualifies as a socialist redistributor.

[pennhr]

Following up on the dfranz post on the "death" tax, Sen. McCain would surely have labelled his hero president, T. Roosevelt, a socialist redistributor for saying, on April 14, 1906: "As a matter of personal conviction . . . I feel that we shall ultimately have to consider the adoption of . . . a progressive tax on all fortunes, beyond a certain amount either given in life or devised or bequeathed upon death to any individual -- a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual; the tax, of course, to be imposed by the National and not the State Government. Such taxation should, of course, be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits." In strengthening the role of government to make such rulings over private wealth, Roosevelt also said in that speech, and contrary to Sen. McCain's long held views on regulation: "Again, the National Government must in some form exercise supervision over corporations engaged in interstate business . . . so as to permit us to deal with the far reaching evils of over capitalization . . . this superintendance and control over corporate wealth to be exercised . . . with the firm purpose both to do justice to [the men who have created the wealth] and to see that they

[dfranz]

It's interesting to watch the repugs convince so many people to vote against their own best interests. They label things like "The Death Tax" which 95% of the country would never see, but because they call it a death tax the simpletons out there oppose it. They call Obama's plan socialism while selling welfare for rich people in the form of tax cuts and bailouts. Sarah Palin is the Governor of the greatest welfare state in the USA where people pay no sales tax or income tax but get $$$ from the state for gas & oil royalties while receiving more than $1.50 in federal money for every dollar collected in taxes. Please, stop the hypocrisy. The middle class is the engine that runs the ecconomy. If they are hurting, and we are, then the ecconomy is hurting. This country cannot self sustain if everyone is simply working in a service industry for the few rich people.

[bakerjm821]

I also find it interesting that in Alaska people get a check in the form of an
oil rebate every year. This is the same State that the sharp tonged Palin
is gov. That to me smells a bit socialist using HER definition.
The right wingers like taking money but really hate the thought of letting
hardworking americans keep more of what they earn.

[fan4truth]

What about the tax gap between what businesses should be paying and what they actually are paying? Every year the IRS lists the shortfall in the billions of dollars for businesses that do not pay their fare share of business taxes.

Also the capital gains tax needs to be reviewed for people who make their sole income (as in the case of Blackwater, inc.) on it. They pay 15% and 1/2 of their employee payroll taxes. If they were a schedule C (or F) then they would need to pay the SE tax (after the 1/2 SE above the line reduction). As a schedule D and their sole income source they also wouldn't have as much of a tax liability, unlike regular working americans. However, I'm not sure if they would qualify for AMT.

Aside from Reagan, the current Bush regime has shown itself to be a proponent of socialism with this bailout plan.

[Panicum]

If you want to receive a blank stare and a few moments of silence followed by untelligible stammering from conservatives, refer to the EITC as being part of a "guaranteed annual income" program.

[bointreau]

"the Republicans think giving money to people is socialism "

But they also believe that giving your tax dollars to the wealthy corporate elites is your duty.

[indianaeric]

About 40% of all households in the US don't pay any federal income tax if one includes the households that don't file federal tax returns (it's actually 38%). In order to get a tax credit, whether earned income or Obama's, one needs to have income and file a federal tax return. The 40% number that is bandied about usually refers to the percentage of federal tax filings that result in no federal income tax liability, which is apparently based on a WSJ editorial
http://online.wsj.com/article/SB121910303529751345.html?mod=googlenews_wsj
which cites a CBO study
http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml
This study divides tax filers into quintiles (fifths) and gives averages for these. The bottom two quintiles have zero tax liability on average. The WSJ editorial erroneously assigns the average of each quintile to the entire quintile, which is where the 40% number comes from.
To accurately calculate, download data from the IRS:
http://www.irs.gov/taxstats/index.html
2006 is the latest year for which details are available. What one finds is:
138M filings
194M taxpayers (accounting for married filing jointly/separately)
46M federal filings with zero income tax or 33% of filings.
59M taxpayers with zero income tax or 30% of filing taxpayers.

So the correct statement is, 30% of all federal tax filers have no federal tax liability after credits and deductions. This percentage will rise if more tax credits are applied but the current baseline is 30%, not 40%.

[jonzoct]

indianaeric, you hit the nail on the head. The "40% of Americans pay no federal income tax" mantra, as being disseminated by the right wing propaganda machine (News Corp, Limbaugh, Kudlow, Creators Syndicate columnists, McCain/Palin, et al), is utter misinformation which shockingly is not being exposed/corrected by the mainstream "liberal' media. Are journalists simply ignorant about matters regarding federal tax burdens or are they simply terrified of being called "liberals," "socialists," or some other epithet being thrown around by the right wing mob? Why hasn't the Obama camp made any effort at all to refute this piece of misinformation?
The state of journalism­/fact-find­ing in the media business is frighteningly sad when the only piece of truth regarding tax burdens can be found exclusively on a blog comment while misinformation is spread pervasively not only on the Internet but on TV news stations, newspapers, radio stations, and magazines from coast to coast.

[calhar]

So the Republicans think giving money to people is socialism .When i give money i consider it charity.Apparently the Republicans don't have any charity in their hearts.

[TheFriendlyAtheist]

Good post Paul. Here in California we have a sales tax of about 8%, coupled with the FICA taxes that are also about 8% makes an effective tax rate on the poor, because they spend almost all of their income on goods subject to sales tax, of about 16%. Which is 1% higher than the tax paid on the income of hedge fund managers who pay only 15% because their income is taxed as capital gains.
It says a lot about the greatest, richest, most powerful nation in the history of the world that 40% of households make too little to have to pay income tax.

[Pdubya]

I wonder if Obama will write personal checks to those that write him as Reagan did?

[wheresthebeef]

Reagan wrote to Obama? Who knew?

[allonfla]

I was thinking about the Earned Income Tax Credit as I heard McCain-Palin talk about Obama being a Socialist. I was like ,huh?! Too bad reporters aren't smart enough to ask about it.

[RaineyDay5]

OMG ME TOO! I cringe everytime someone from the Obama camp is questioned about this and nobody brings this up!!!

[Chavez08]

The banker bailout, alone, is enough of an argument to shut-their­-pie-holes regarding "Socialism".

Washington, literally, put Wallstreet millionaires on WELFARE and they have the nerve to criticize Obama to want to give to the underprivileged.

This truly is a sick country.

[LeftRight]

You mention two taxes that even those who don't pay income tax pay, but you forgot the OTHER taxes that they pay. They pay property taxes (either directly to the County, or through their landlord) and they pay SALES tax, which eats up a significant portion of their income!

[Paul Abrams - Huffpost Blogger]

You are correct.
I was focused on federal taxes they pay as a counterfoil to assertions they pay no federal taxes.
The bottom line, of course, is that they need relief from the increased prices and declining real wages they have experienced over the last 8 years.

[LeftRight]

Plus you've also got to consider that the poor pay sales taxes and property taxes (as I said before, either directly or indirectly) on almost their entire paycheck. How about the rich? I GUARANTEE that they are paying a smaller percentage of their incomes into sales taxes and property taxes!

[odyssey58]

He was part of the Hollywood elite so he must have been a closet liberal. Yeah, that explains it.