Citizens and Taxpayers
posted by Neil Buchanan
Under the provocative title “How Many Americans Should Have Skin in the Income Tax?” the TaxProf blog recently described a study by the Tax Foundation regarding the number of people who pay no federal income tax. While about one-third of income tax filers reported no federal income tax liability in 2006 (up from 20% in 1981), this number is estimated to rise to 43% under John McCain’s proposed tax policies and 44% under Barack Obama’s. TaxProf concluded: “The Tax Foundation rightly notes: ‘It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.’” It is, indeed, a good idea to have a serious discussion about why this question seriously misses the point.
This view of low-income taxpayers is reminiscent of the Wall Street Journal editorial page’s infamous “lucky duckies” argument from several years ago. The basic idea is that
some people have low enough incomes to fall below the threshold for paying federal income taxes, making them lucky duckies who can thank their good fortune to have no fortune. Like the “skin in the game” trope, the stated worry is that people who get a free ride will not have a reason to be vigilant guardians against overweaning government and thus will not be good citizens.
The most obvious response to this argument is that the people who pay zero federal income tax still pay taxes. Between payroll taxes (starting on the first dollar of earned income), sales and excise taxes, state and local income taxes (which frequently do not exempt nearly as much income as in the federal system) and property taxes (paid by those who own homes despite low incomes), even the lowest income people pay taxes. This is (or should be) old news, but it does not stop people from repeating the argument as if federal income taxes were the whole of the tax system.
Much more fundamentally, however, are we really to take seriously the idea that people — even (or especially) purely self-interested people — become disengaged simply because they currently pay no income taxes? Last week, Mike Dorf discussed the Johnson Amendment, which puts tax exempt organizations at risk of losing their tax-free status if they engage in certain types of partisan political activity. Recently, some ministers directly engaged in a protest to dare the IRS to revoke their tax exempt status for making blatant political endorsements from the pulpit. By the “skin in the game” argument, this should not have happened. The churches currently pay no taxes, so they must be “disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.” When it comes to the social policy of subsidizing religious activity through the tax code, however, these non-taxpayers are quite obviously deeply engaged.
The broader point, after all, is that one’s tax situation can always change. If we view people simply as tax minimizers (and thus subsidy maximizers, since subsidies are negative taxes), as the “skin in the game” and “lucky duckies” logic would have it, there is still plenty at stake for everyone who potentially has something to gain or lose from a change in tax and spending policy. That is, everyone. Moreover, even people who know that they are going to receive a subsidy will understand that the size of their potential subsidy will depend on whether the rest of the government is wasting money, giving even net recipients of government dollars the same (if not greater) incentive to oppose waste elsewhere as everyone else.
If we do not view everyone as simply out for their own hide, of course, the argument becomes weaker still. Citizenship is about more than one’s net tax bill. If the government fails to properly regulate the financial system, then we lose livelihoods, neighborhoods, and potentially the entire economy. If the government allows pollution to poison the water and air, disease and death follow. We all have skin in the game, all the time.
October 8, 2008 at 9:31 am
Posted in: Politics, Tax
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Responses (4)
John - October 8, 2008 at 2:06 pm
Good point. I wonder, is there any easy way to determine the average state/local tax payments per year by these same folks? That would no doubt present a much fuller picture of the situation.
amused - October 8, 2008 at 8:44 pm
“Not having skin in the game” does not mean being politically inactive. It means not being required to pay for state’s spending and therefore being less sensitive to tradeoffs that spending always creates.
“Representation without taxation” is just a flip side of “taxation without representation”. When one group is represented without being taxed, another group inevitably ends up being taxed without having a corresponding amount of representation. When the gap between taxation and representation is small, it’s tolerable. When it’s huge, bad things happen.
Neil H. Buchanan - October 8, 2008 at 10:08 pm
“It means not being required to pay for state’s spending and therefore being less sensitive to tradeoffs that spending always creates.”
If I’m the recipient of a state’s spending, then I have every reason to be especially sensitive to the tradeoffs that spending creates. It’s precisely those tradeoffs that would put the spending that benefits me at risk.
This whole way of framing the issue is meaningless. I respect (but disagree with) people who say that there should be less redistributive taxation. It’s not, however, meaningful to say that being taxed less than another group (or receiving net benefits that still leave you worse off than those who are paying net taxes) makes you an insensitive citizen.
amused - October 9, 2008 at 1:44 am
If the government could commit to make no changes in the total size of spending, then, recipients of government aid (as a group) would have skin in the game, because they would know that the costs of every new program will come out of their own pockets. But we all know that’s not how the government works. The costs of new programs routinely come out of taxpayers’ pockets and have no effect whatsoever on the size of the current recipients’ handouts. Thus, current recipients face few, if any, tradeoffs. They are voting to spend someone else’s money — what’s not to like? As a side benefit, increases in the total government spending increase the numbers of identifiable beneficiaries, which increases political clout of current recipients.
(As a side note, you’ve just substituted “recipients of government aid” for “non-taxables.” The two groups don’t overlap neatly, and the substitution is not entirely helpful for our purposes, but I am willing to overlook this wrinkle for now and go on with your substitution).
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