About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea

By :: September 19th, 2012

About that 47 percent: Let me introduce you to Andrea. When I met her a couple of years ago, she was a home health aide who typically worked six days-a-week and often put in 50 hours.

She loved her work, but it is not something most of us would want to do. According to the Labor Dept., aides are more likely to be hurt on the job than coal miners.  Her pay: $8.40-an-hour.

Andrea was 22 and a single mom. Her daughter, Trinity, was 3. Andrea got up before 7 each morning, rode the city bus with Trinity to day care, then took another bus to her job—caring for a patient in his home.  After  a grueling seven-hour day, she’d take a bus to pick up Trinity, then another bus home, where she’d make dinner, help Trinity learn her letters, and work on her own GED.

At $8.40-an-hour, Andrea could earn $420 for a 50-hour week. And if she worked 50 hours, 52 weeks a year, that’s $21,840—well below the income tax threshold for a single mother with one dependent child.

For someone in Andrea’s situation, that’s no accident. I don’t know about her personal tax situation, but a typical head of household like her would owe no income tax thanks largely to the Earned Income Tax Credit and the Child Tax Credit, both subsidies passed by large majorities in Congress and intended to encourage people to work.

Without them, she’d face stiff marginal tax rates for taking a job—a penalty that would punish both her and society at large. In fact, as my former Tax Policy Center colleague Len Burman noted in a TaxVox  post last year, the EITC is the single most effective government program aimed at getting people out of poverty.

Of course, people like Andrea still pay taxes. For 2012, someone making $21,840 would pay about $2,900 in Social Security and Medicare payroll taxes (including her employer’s share). Next year, if the payroll tax holiday expires as scheduled, her payroll tax would rise to roughly $3,300. She’d also likely pay other levies, including state and local taxes.

On net, someone in her situation would indeed be a federal taxpayer, though barely. In 2012, she’d receive a $2,856 income tax payment, not quite enough to offset $2,900 in payroll taxes. If the temporary payroll tax cut expires, she’d owe about $450 in net federal taxes.

Keep in mind that 60 percent of recipients claim the EITC for only a year or two, and only about 20 percent take it for five years or more. With better skills and more experience, many eventually earn enough that they no longer qualify. And, that it seems, is the point.

After spending a few days with Andrea, I’m pretty sure Mitt Romney got it wrong in his videotaped talk to a group of contributors. To Romney, people like Andrea “believe that they are victims, …believe the government has a responsibility to care for them….” He added, “I’ll never convince them they should take personal responsibility and care for their lives.” But Andrea in no way thinks she is a victim and is already taking responsibility for her life.  She does not need a politician to encourage her.  She has Trinity.

Romney went off the tracks by confusing the EITC and CTC with a sense of victimization and entitlement. People who benefit from these subsidies are exactly the opposite of that stereotype. Many want desperately to work, and struggle more than many of us can imagine to achieve the American Dream. For people like Andrea, those subsidies are the difference between keeping their heads above water and drowning.

Romney, like many who focus on the 47 percent, is also blinded by the deceptively simple binary status of taxpayer/no taxpayer. In truth, low-income workers benefit far less from tax subsidies than middle-income households, and vastly less than high-income households.

Let’s just take two examples: According to TPC, a household making between $20,000 and $30,000-a-year got an average EITC benefit of $866 in 2011. By contrast, those making more than $1 million got an average tax cut of $7,000+ thanks to the deductions for mortgage interest and property taxes alone.  The EITC may have moved a household from federal income taxpayer to non-taxpayer. But who was really better off?

 

16Comments

  1. AB  ::  4:50 pm on September 19th, 2012:

    Can you clear something up for me about this? Does the 47 percent figure refer to how many people got a refund or owed nothing vs. those who had to write a check in April?

    I did not think until a few minutes ago that I fell into the 47 percent, but I begin to think I might. I work for a non-profit, grossing almost $70k. Last year’s AGI was about $61k, however, due to pretax contributions to 401(k) and so on. Because I gave nearly $13k away (about 18% of my gross income), itemized deductions reduced my taxable income to just under $40k. Since I had paid the government more throughout the year than I owed, I got a refund in April. Does that mean I would be considered to have “paid no taxes”?

  2. MostlyHarmless  ::  5:53 pm on September 19th, 2012:

    Agreed. What is meant by this? I have heard it asserted that the number comes from 47% single filers. That ignores joint and head of household returns. Are married couples included as 1 or 2 in that? What about teenagers and senior citizens. What is the percentage of the population who has never paid Federal Income tax?

    The ridiculous “Tax Foundation” website basically said 1/3 of taxpayers don’t pay Federal Income taxes,

  3. Emily  ::  9:09 am on September 20th, 2012:

    I think you’re engaging in a bit of manipulation to make Andrea into a net payer by including the employer share of payroll taxes in her net payments. If you are looking at just her payroll deduction portion, she is receiving a net $1200 due to the EITC. Also, this article assumes that she isn’t receiving a net benefit from state and local government through housing subsidies, food stamps, and other assistance programs.

    I believe that EITC and other government programs have been a lifeline to a lot of people like Andrea who have been able to pull themselves out of a bad situation. You don’t need to lie with numbers to defend them!

  4. Robert  ::  9:31 am on September 20th, 2012:

    Who is doing these calculations? Someone making $21,840 is not paying $2,900 dollars in SS/Medicare taxes. The rate right now is only 5.65%, which on her base wage is $1,234 dollars. The $2,900 is including the employer side, which employees do not pay. The employer pays those out of pocket.

    For someone making $21,840 with one dependent is, like Emily pointed out, still netting money from the government. Also, I find it hard to believe that the “average” EIC between $20000 and $30000 is only $866. At $30000, with the phaseout, the lowest possible EIC amount is $963 (one child). How is it possible that the average EIC is below even the lowest EIC amount available, unless you’re counting people who aren’t getting EIC at all, which is deceptive.

    Finally, if a person making $1 million dollars gets a $7000+ dollar tax break from deductions, that only equates to a .7% net savings of their gross income. A person, like Andrea, getting back $1200 for the EIC is netting 5.5% of her income. I would have to say Andrea’s boon from the EIC has a far greater impact than the millionaire’s “tax breaks”.

  5. Robert  ::  9:37 am on September 20th, 2012:

    The 47% refers to people who either 1) have a zero income tax liability, 2) receive enough credits to wipe out their liability, or 3) receive enough credits to wipe out their liability and get a refund in excess of what they paid in.

    Getting a refund does not mean you paid no taxes. In your case it means you paid in more than your legal liability. You’re not included in that 47% statistic. The statistic refers to all individuals tax returns filed. Joint couples would be counted as just one filer (if they file jointly). People who don’t file are not counted.

  6. Tax Roundup, 9/20/12: Minnetonkan voted off the island. Also: 6 million health insurance scofflaws. « Roth & Company, P.C  ::  9:48 am on September 20th, 2012:

    […] About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea (Howard Gleckman, […]

  7. Ralph H  ::  10:18 am on September 20th, 2012:

    Thank you Robert and Emily for keeping TPC honest. How can we depend on complex analysis (for example the assertion that Romney will raise taxes by $2000 per middle income filer) when you screw up a simple employee deduction.

    I applaud Andrea for her hard work and certainly do not begrudge her non payment of income tax. Since she is working on her GED I assume she has higher asperations and if the economy turns around we hope and pray she benefits from it.

    I also resent you reasoning that someone benefitting from a deduction is equivalent to escaping taxes. In the first case it lowers the effective tax rate, say from 25% to 24%. We have a choice through congress in setting the rates, preferences and deductions. If you comply with the law you are legal, whether receiving EITC or the mortgage deduction. Change the law if you want. However, the referenced millionaire is more than paying his share of the US taxes.

  8. KT  ::  10:19 am on September 20th, 2012:

    Most economists believe that the employer share to SS and Medicare is indirectly paid by employees, as research indicates that employees “pay” for these through lower wages/benefits. So it’s normal for an economist to count those taxes.

    Also, the point wasn’t necesarly who is benefiting more in percentage terms, the low-income taxpayer or the high-income taxpayer. The point was that most government dollars spent on tax breaks are going to middle and upper income households, so it is unfair to make claims as if the 47% not paying income tax are to blame for the deficit. Far more money is being lost in other places.

  9. Romney Math and the 47% | Mary's Musings  ::  5:24 pm on September 20th, 2012:

    […] many eventually earn enough that they no longer qualify. And, that it seems, is the point.” Meet Andrea Gloomier than this is Romney’s statement about folks who depend on government. The source of this […]

  10. Olin  ::  11:33 am on September 25th, 2012:

    SO “On net, someone in her situation would indeed be a federal taxpayer, though barely. In 2012, she’d receive a $2,856 income tax payment, not quite enough to offset $2,900 in payroll taxes. If the temporary payroll tax cut expires, she’d owe about $450 in net federal taxes.”
    She PAID $44 in net taxes?

  11. Michael Bindner  ::  2:36 pm on September 28th, 2012:

    First, Romney mainly panders to whatever audience he is talking to. We don’t know what he really thinks. Second, the real problem is that someone who does not yet have a GED should be paid to get one at a substantially higher minimum wage than this poor woman is bringing in, with substantial tax credits to cover the cost of her child care and to support the child, with health care coming from the training provider as if she were staff (treat clients and staff the same). Sadly, neither candidate is willing to go that far. Mores the pity.

  12. RAV  ::  1:59 pm on September 30th, 2012:

    The math in this article is incorrect.
    40hrsx$8.40=$336, 10hrsx$8.40×1.5(overtime rate)=$126.$336+$126=$462/Weekx52=$24,024/year.
    $24,024x.0565=$1,357 for FICA&Medicare (which are “savings plans”
    according to the liberals-not taxes-which are repaid to the payor in
    the future assuming you live long enough to collect your reward.)
    The employee does not pay the employers share of FICA & Medicare.
    You fail to mention Sec 8 housing assistance, food stamps,free lunch & free breakfast at school, transportation assistance, etc..

  13. Frank  ::  8:00 am on October 1st, 2012:

    I think Andrea does benefit the most by getting help. The millionaire may have gotten a tax break but it isn’t as valuable to him/her as the amount Andrea received. Besides, many millionaires provide or donate quite a bit to non-profit organizations that help others too and knowing that the taxes they pay can be reduced by being philanthropic is a definite incentive to donate for causes that support our society. Many non profit organizations thrive and employ people and these jobs and good deeds that they do most likely help many more low income people then they do wealthy people, so I am for tax breaks for anyone. I know many wealthy people get that way because of their entrepreneurial tendencies and these tendencies do provide many jobs for other people too. To tax them to reduce the deficient or provide handouts to others is not going to reduce government, but increase government which we do not need.

  14. Obama and Romney: Head to Head on Income Tax | Finances Online  ::  6:56 am on November 2nd, 2012:

    […] to housing… should take personal responsibility and care for their lives.” This was roundly criticized by many as being insensitive to what’s happening in the real […]

  15. Junggon  ::  2:13 am on December 6th, 2012:

    The products into which money in a reeemirtnt plan can be invested change a good deal, both apropos their type and vis the level of risk concerned in the investment. Cash market funds use such investments are certificates of deposit and Treasury bills. Other kinds of fund are available too.

  16. bill  ::  1:21 am on February 26th, 2013:

    What do you think of a person cashing in over 500 million dollars from the stock market and bonds in one year and paying no taxes? It happened. Was this fair to the person who actually works and pays taxes?