[Promoted by Epluribusunum. I was remiss in not finding and promoting this when it was first published. When asked to recommend someone who could speak with authority about poverty in Loudoun, I immediately thought of Ann. She will be leading a discussion about poverty in the US and in Loudoun tomorrow at St. James UCC in Lovettsville.]

Much has been made in the news recently about (supposedly) 50% of Americans who “don’t pay income taxes,” and whether or not they contribute to our national welfare. An analysis that takes into account all taxes paid—shows that everyone has “tax skin in the game.” About two-thirds pay payroll taxes, and most pay state and local sales taxes as well as excise taxes on gas.

According to the nonpartisan Tax Policy Center, of those that file 1040s showing a zero tax due on April 15:

13 percent are a mix of mostly higher-income individuals with enough itemized deductions for items like mortgage interest, health payments, or charitable contributions, education tax credits, or tax exempt interest to zero out their income taxes.

22 percent are senior citizens who can exclude some or all of their Social Security income (which was taxed previously at the outset) and may have tax-exempt interest from mutual funds and municipal bonds. For those who itemize, charitable contributions and medical expense deductions also subtract from their tax liability.

15 percent are working families, many of them extremely low-income, who qualify for one or all of the Earned Income tax credit, the Child tax credit, the Child and Dependent Care tax credit.

For half of those that don’t pay federal income taxes, standard deductions and personal exemptions are enough to counteract their taxable earnings. A couple with two children earning less than $26,400, for example, will pay no federal income tax in 2011 because their $11,600 standard deduction and four exemptions of $3,700 cuts their taxable income to nil.

The larger question, really, is this: How is it that a working couple doing a responsible job for anybody anywhere earns only $26,400 per year? About 25 years ago, our society decided that cheap consumer goods and services were more important than the right of workers to engage in collective bargaining which would have provided a counter-balance to the “race to the bottom” that a focus on stockholder value only naturally produces. So now we all have cheap consumer goods (relatively) and 50 million households have stock portfolios. The extra social cost of this cheap labor has been placed onto us in other ways — for health, education and safety. If businesses won’t pay a worker enough to cover these items, then who picks up the cost? The answer is we all do, in one form or another…if not through social programs, then through social decay and property devaluation.

What is the likely lifestyle of a family of 4 that makes $26,400 per year? Best case scenario: $12.69 per hour for one breadwinner that then has $.72 cents withheld for payroll withholdings (more if the temporary reduction is lifted). So, he is paying $1,497.60 in taxes. If he is self-employed, he pays almost twice that. Housing in Loudoun costs at least $1,000/month for a two bedroom apartment, plus utilities. That’s $12,000 plus $1200 minimum. Food for 4 even eating rice, beans, oatmeal and macaroni would cost at least $500 a month, buying detergent, toothpaste, soap and toilet paper, too. That’s another $6,000. Clothing at thrift stores can be had for $1000 a year for all four if carefully done (including sales taxes). Transportation is a huge expense, because the public bus service doesn’t run on weekends or evenings, so to make his job as a waiter, he has to have a car. A 10-year old Honda would be hard to maintain and insure on the money remaining (includes excise taxes on gasoline). There is nothing left for dental or eyeglasses, even if you assume the family goes to the emergency room and takes care of other health issues with home remedies.
Now, if you earn more than $250,000 at work, have a large mortgage deduction, and a stock portfolio that benefits from cheap labor… you might convince yourself that this cheap labor force should pay more tax so you can pay less. That somehow their contribution to society is not yet sufficient. Really? What would you like for them to give up in order for you to pay less tax? Socially we appear to have decided they can’t move in with other families in order to have cheaper housing. Overcrowding! The political will to improve public transporation isn’t yet firm. So, what exactly would you have them do?

We are all part of a system that takes advantage of cheap labor. First agree to pay a living wage with medical benefits to anyone who works and then let’s talk about tax “equality.” I could surely be persuaded to lower the social security premium payments on the self-employed (they pay both the employee and employer share).

But if that’s not enough, then think about this: It’s going to hurt the economy more if you raise taxes on the poor than the rich, because the poor spend every penny they’ve got; if you take a dollar away from them in taxes, that’s a dollar they don’t spend. The billions of dollars the very rich are holding have not resulted in more jobs because there is low consumer demand. They won’t hire until we start spending. And we won’t spend more until jobs feel more secure. It’s quite a delimma. But raising taxes on the poor is not the solution.