Tax poor people: Republicans want the IRS to nail "lucky duckies."

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Aug. 22 2011 7:03 PM

Republicans for Tax Hikes

Republicans have finally found a group they want to tax: poor people.

Texas Gov. Rick Perry. Click image to expand.
Texas Gov. Rick Perry

It's not news when Jon Huntsman criticizes fellow Republicans. It's news when he agrees with them. On Sunday, in an interview with the Wall Street Journal, Huntsman found himself in a virtual love-in with Rick Perry and Michele Bachmann over, of all things, taxes. The paper asked Huntsman if "the half of American households no longer paying income tax—mainly working poor families and seniors—should be brought onto the income tax rolls."

David Weigel David Weigel

David Weigel is a reporter for Bloomberg Politics

He agreed, crediting the GOP's current front-runner for vice president, Sen. Marco Rubio, with the insight that "we don't have enough people paying taxes in this country."

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The Journal called this position the "new GOP orthodoxy," which it is. When he announced his presidential bid two weeks ago, Perry told a room of conservative activists and bloggers that "we're dismayed at the injustice that nearly half of all Americans don't even pay any income tax." He was following on Bachmann, who'd just told the South Carolina Christian Chamber of Commerce the very same thing.

"Part of the problem is today, only 53 percent pay anyfederal income tax at all; 47 percent pay nothing," said Bachmann. "We need to broaden the base so that everybody pays something, even if it's a dollar. Everyone should pay something, because we all benefit."

Huntsman, Perry, Bachmann: All of them are taking a bold stand in favor of cognitive dissonance. The main reason Washington couldn't get a "grand bargain" on the budget and debt ceiling was that Republicans balked at increasing taxes on anyone. How did we get from there to the notion that it would be a good idea to raise taxes on the 60-odd million people who didn't end up owing the IRS any money last year?

Conservatives have an argument: You can't, and shouldn't, balance the budget and pay for entitlements by continually raising taxes on the rich. Doing so, they say, is "class warfare." At the same time, however, they must contend with persistent support for the welfare state. So conservatives are betting that regular Americans are losing track of how much it costs to give them what they want.

This isn't a new theory. In 2002 and 2003, long before it got Huntsman in the room, the Wall Street Journal editorialized that poor people who didn't pay income taxes were "lucky duckies." The poor slob with a low income and child tax credit would get a small or nonexistent tax bill, not one that would "get his or her blood boiling with tax rage." The problem here wasn't that the poor slob wasn't paying any taxes; the problem was that his meager tax bill failed to foment enough anger to reduce taxes on other people. Tax cuts for the rich—tax cuts for anyone, really, but the Journal has always been concerned about tax cuts for the rich—require a broad base of outrage.

Republican politicians didn't make this argument—until the Obama era. What changed? For decades, the "lucky ducky" number, the percentage of Americans that pay no taxes, never rose above 30 percent. The Bush tax cuts pushed it over 30 percent, but not too far over. Then, in 2008 and 2009, the economy collapsed. The government responded with, among other things, new tax deductions.

The result: The percentage of people paying no income taxes spiked up to 47 percent and stayed there. When the Tea Party started rallying in 2009, it wasn't protesting higher taxes, because federal income taxes were lower, with more loopholes. It was protesting the perception that productive Americans were shelling out for an ever-expanding class of moochers. And Republicans have taken the Tea Party's lead.

This could be the start of a sea change in how Republican politicians—the people who actually need to win votes—talk about taxes. In 1994, the GOP won the House and Senate with a promise to introduce a $500 child tax credit. The promise was kept. That became one of many tax credits intended to make middle class life a little easier.

One of the think tankers who helped Republicans develop the idea was Scott Hodge, who's now president of the Tax Foundation. In retrospect, he thinks the tax credit was a disaster. "I don't think we fully appreciated the level of pork barrel tax policy we were engaged in then," Hodge says today. "Instead of broad-based tax reform for everyone, we were engaged in targeted tax policies, selectively identifying classes of people. It was a terrible idea. It justified all manner of social engineering through the tax code. It really has created two Americas: the nonpayers and the payers."

One funny thing about the nonpayers: They do pay taxes. Everyone who works pays FICA taxes. Everyone who fills up a car pays federal gas taxes. The theory that these people don't appreciate how much the government is moving around money is just that: completely theoretical. This may be why the policy responses to the problem are so gimmicky. Bachmann said that the lucky duckies might get a better appreciation for the size of government if they paid a "dollar" a year. Last month, I heard Sen. Dan Coats, R-Ind., make the case for tax reform and suggest some sort of nominal charge that would "broaden the base" and make the system more fair.

"Those who are not paying any taxes but are receiving benefits from the government because of their income status— there ought to be a reduction from the benefit they receive," Coats said. "Even if it's 10 bucks, or 15 bucks, we [need to say we] have deducted for your participation in helping to support our country's needs."

Bachmann's "dollar" plan would net around $60 million, or two-thirds of NPR's annual federal funding. Coats' plan would net a little more. We're being generous, though, because these aren't plans. They're debating tactics.

"We should be doing this even if we had a balanced budget," says Hodge. "This is not really about deficit reduction."

This idea hasn't gone totally viral yet. There is a Republican case against making sure that poorer people pay income taxes. It's being made by Ron Paul.

"Dr. Paul doesn't want to be president so he can raise taxes on anyone, especially on the poor and middle class," says Ron Paul's spokesman, Jesse Benton. "If half of the American people don't pay income taxes, then we are halfway to our goal of eliminating it for everyone."

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