Misleading Statistic – 47% Of People “Pay No Federal Income Tax”

This story was interesting. Allegedly, 47% of people pay no Federal income tax. That statistic is misleading.

That statistic ignores the 15.3% payroll tax (Social Security and Medicare). Remember to include both the employer and employee portion! For many low-income workers, the payroll tax costs more than income taxes! (For very low income workers, the “Earned Income Tax Credit” partially rebates the SSN+Medicare payroll tax. Remember to include the employer-paid amount!)

For super-wealthy CEOs and hedge fund managers, they use the carried interest tax loophole to dodge the payroll tax and income taxes.  Most of their income is long-term capital gains via share grants and option grants.

That statistic ignores the effect of a restricted market. Suppose your labor is worth $20/hr, but you only get paid $10/hr. You’re “paying” a 50% hidden tax, but that doesn’t show up in any State statistic. This missing $10/hr goes to profits for the CEO and executives who control your workplace.

Romney made an embarrassing and misleading quote, regarding people who don’t pay Federal income taxes. It was harshly criticized and misinterpreted. I understand what Romney really meant. It would have been more accurate if he said

Democrats buy votes with taxpayer money. They buy votes with welfare payments. They buy votes with salaried unionized government employees. Those people will not vote Republican, no matter what we do.

If someone is totally dependent on government, they won’t vote for a candidate who wants to shrink government and reduce spending.

It is not sustainable, when a large portion of the population is dependent on government handouts. We have to fix this problem, or the country and economy is in serious trouble.

If we don’t fix this, the system that makes us wealthy will fall apart.

That’s what he really meant. However, there are two points that should be added to make it really accurate, although Romney doesn’t understand this and would never say it.

1. The problem is not just welfare recipients and unionized State employees. Bankster theft is a much bigger problem. Banksters steal more than all welfare recipients and unionized State employees. Lloyd Blankfien and Jamie Dimon are the true welfare queens.  Banksters and insiders receive massive State subsidies, and then spend a lot of money lobbying to keep the pork flowing.

2. Most of the super-wealthy didn’t get there on true merit. Many of them inherited wealth and influence from their parents. Most of them excelled at navigating a corrupt system. When that system falls apart, their wealth will disappear. Most super-wealthy people could not build or run a profitable business in a really free market.

There’s another reason that Romney’s quote is embarrassing.  Most politicians give a different speech to different groups, tailoring their lies to the audience.  When a politician speaks to super-wealthy insiders (i.e. his true backers), he’s speaking closer to the real truth.

I heard a really amusing conspiracy theory, regarding the 2012 Presidential election. It is “The Republicans realize that the economy is going to suck for at least 4 more years. It is better to have Obama get reelected, while the economy tanks further. Then, the Republicans will control the House and Senate in 2014 and 2016, and elect a Republican President in 2016. The Republicans are losing on purpose, because they want Obama to be President while the economy continues to crash. If Romney is elected and the economy still sucks, then the pendulum will swing back to the Democrats again in 2016.”

It is misleading to say that 47% of people pay no Federal income tax. That ignores the payroll tax, other taxes, and hidden taxes. Romney’ “offensive” quote was misunderstood, taken out of context, and exaggerated. His mistake shows that he doesn’t understand the real problem. He didn’t state the problem as clearly as he could. The real problem, and what Romney really meant, is “Democrats buy votes with tax money, and these people will never vote Republican. That isn’t sustainable.” A much more serious problem is “Banksters and insiders receive massive State subsidies. They use that money to lobby and buy elections. They will block any real reform.” Bankster welfare queens steal more than all welfare recipients combined.

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