Famously, Republican presidential candidate Mitt Romney was caught maligning the 47% of Americans who don’t pay, net, income taxes.  Worse, he lumped them altogether as people who are ‘dependent’ on government largesse.

That said, as defined by Romney, in reality how many takers are there?  Political scientist Nathan Kelly gives this question a good look in a guest post at the blogsite The Monkey Cage.

…when politicians talk about makers and takers, they speak in dichotomous terms. It’s not a sliding scale. Either you’re a maker or you’re a taker. Since the rhetoric is dichotomous, my strategy for identifying takers will be dichotomous as well.

So who should we count as a pure taker? As a starting point I think it’s fair to eliminate workers and those not receiving government benefits. Workers are not purely takers because they pay payroll and other taxes. In addition, workers are MAKING, earning income through their labor and therefore taking some responsibility for their own well-being. Non-beneficiaries are not taking from the government because they don’t receive benefits. So here’s an initial estimate, in which I’ve divided the 15-and-over population into three groups: workers, non-workers with no government benefits, and non-workers receiving benefits. Only the last group would fall under this definition of taker.

So we have an initial possibility of 24.7% takers. That’s a pretty big number. It’s not 47% but it’s an appreciable group of Americans. Are all these people really takers? Let’s drill down into that 24.7%. Why are those not working and receiving benefits not working? Why are they not makers?

Of the 24.7% of Americans who did not work and received government benefits in 2010, more than 70% are either disabled or retired. 7.7% are not working in order to care for home or family – not a group that family values conservatives typically malign. 12.8% are going to school, which likely indicates at least a degree of taking responsibility for oneself. So a large portion of those not working and receiving benefits – the potential takers under the broadest definition – would likely not be considered takers even by some of those promulgating the makers vs. takers argument.

However, some of the people who we are tempted to let off the hook might actually be more culpable than they appear at first blush. Some retirees may still be young and able to work. Some people caring for home or family might be part of a household in which nobody works, not a traditional stay at home mom or a child caring for an aging parent. So let’s re-create the initial chart and divide the non-working government beneficiaries into three categories: those who are non-working age, disabled, or attending school; those who are non-students, able-bodied, and working-age in households with no other earners; and everybody else. We’ll define working age as 18-65 in order to maximize our ability to find takers (prime working age is usually defined as 25-55). Excluding those living in households with other earners eliminates people who are at least part of a maker household. This last excluding factor is probably the most controversial, so I separate it from the others in order to see what difference it makes.

The bottom line here is that there aren’t that many takers in America. The most restrictive definition pegs the percentage of takers at 2.4%. If we’re willing to include people in households with at least one earner, that number increases to 5.2%. Lots of people, even quite rich people, receive government benefits in the United States, and that is a reasonable thing for true fiscal conservatives to be frustrated about. But these numbers simply don’t line up with the rhetoric of a massive class of lazy people taking advantage of the rest of us while eating solely at the trough of government.

Beezer here.  So that’s the breakdown.  Agree or disagree, this is the first analysis I’ve seen that provides any common sense detail.  That said, I still believe the best way to end this discussion is to pay labor more, and of course to create more jobs.  Republicans believe cutting taxes and unwinding regulation will do this.  Didn’t work at all well under the previous Bush administration, so I’m thinking there must be other ways to accomplish these worthwhile goals.  Hat tip once again to Economist’s View for highlighting this article.

Noble Laureate Paul Stiglitz has written a nice article explaining how Mitt Romney’s ability to sidestep taxes undermines public trust and sets a very bad example for Americans.   That he does so and wants to be President too, is frankly astonishing.

There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need?

Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.

More broadly, a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair. Recent research has shown that a belief that the economic system is unfair undermines both cooperation and effort. Yet, increasingly, Americans are coming to believe that their economic system is unfair; and the tax system is emblematic of that sense of injustice.

The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.

But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie….

Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. But, given that the top US marginal income-tax rate is 35%, he certainly is a tax avoideron a grand scale. And, of course, the problem is not just Romney; writ large, his level of tax avoidance makes it difficult to finance the public goods without which a modern economy cannot flourish.

But, even more important, tax avoidance on Romney’s scale undermines belief in the system’s fundamental fairness, and thus weakens the bonds that hold a society together.

Beezer here.  If we could clean up our tax law mess, no doubt overall tax rates could decline while still providing sufficient funding for a strong government.  But who’s going to lead this charge?  The news media doesn’t even ask either candidate what their viewpoint is regarding off shore trusts, or what loopholes and tax expenditures must be closed in order to simplify the tax code.  The candidates certainly aren’t going to do so, although Obama at least wants to return the top marginal rate to those in force during Clinton’s term.  As for something as simple as taxing all income types at the same, lower rates, forget about it.

He won’t release his past tax returns or discuss his use of offshore trust accounts and he disavows any knowledge of what his wholly owned company, Bain Capital, was doing when he was supervising the 2002 Winter Olympics in Utah.  And now Mitt Romney is running television advertising accusing the President of gutting welfare reform by dropping work requirements.

Now for the truth of the matter.   President Obama was responding to the request by two Republican governors (of Utah and Nevada) asking for more flexibility in applying the rules.  This wasn’t the first time such a request has been made.   In 2005 29 governors requested waivers so they could implement the law better for their states’ individual circumstances.  One of those governors was named Mitt Romney.

That’s it.  No big deal in other words, because the underlying principle being applied by the president is well understood.  It’s called federalism.

Romney, the poster child for legally sidestepping taxes, has a nasty habit of making up things about the President, and then attacking him for the made up things.  This is called a ‘straw man’ argument.  It’s commonly used when you can’t find anything substantive to attack, so you make stuff up and construct a ‘straw man’ to attack instead.

It would be real nice if the campaign started dealing with real issues and real policy discussions.  Obama has one out now, framing the campaign as one about whether or not the American public wants to go back to the Bush era policies of tax cuts and de-regulation of finance–policies which obviously ended very, very badly in the worst recession since the Great Depression.   One can disagree with Obama, but the ad is basically fair.  No straw man there.

I’d like someone to ask both the president and Mitt Romney their policy on legal offshore account use.  For them, or against them?

Over at the New York Times, author and journalist Timothy Egan, writes a column about our tax code entitled Tax Face Off: Romney vs Me.

This year, I did my 1040 and its attendant nightmare forms while comparing my family’s financial documents with those of Willard M. Romney’s. He paid 13.9 percent in taxes on income of $21.7 million for 2010 and about the same rate for the not fully completed 2011 returns.

I’m going to pay double Romney’s rate on a mere fraction of his income. But you won’t get any class-war envy from me about a man worth upward of $250 million paying the same rate as someone earning, say, $55,000 a year. Nope. There’s a larger point here than the inequality one, compelling though it is.

Remember: The tax return is a blueprint for how to earn and spend money. It encourages us to do some things and discourages us from doing others.

One disincentive, comparing Romney’s taxes to mine: don’t work. The tax code discourages work, certainly for the rich. And Romney’s plan for the future would further discourage work for poor households with children or those paying for their kids to go to college.

Take a look at Line 7 of the 1040, the one where you report wages, salaries and tips — work. It’s from your W2. Romney, of course, had no wages, salaries or tips, which can be taxed at up to 35 percent. His biggest disclosure is Line 13, capital gain — paper profits — where he weighs in with $12,573,249 from 2010. On that, he pays a mere 15 percent.

The other place to report money earned by doing actual work is on Schedule C. That’s where I put income from books, talks, pamphleteering. And so does Romney. Under the profession category, he doesn’t report himself as a businessman or a politician. He’s listed as “independent artists, writers or performers” — just like a mime, or Carrot Top.

In 2010, Romney’s take from this dodge we share, mostly speeches for his part, was $528,871, a mere 2.5 percent of his income. Were he to get serious about being a hardworking indie performer, he might earn millions. But again, even if he were able to take a deduction for that car elevator he’s putting into his remodeled manse in California, his earnings from his speaking business would be taxed at up to 35 percent.

Better to do no work and pay taxes at a far lower rate on capital gains or a category Romney shares with certain hedge fund managers: compensation from his Bain Capital days also taxed at 15 percent called carried interest.

Another disincentive, as mentioned: don’t send your kids to college. Currently, I can apply for the American Opportunity Tax Credit, which gives families paying tuition a cut of up to $2,500 on taxes owed — a meaningful break.

Romney knows something about college. He has two degrees from Harvard. Three of his five sons — Tagg, Matt and Josh — have M.B.A.’s from Harvard, giving the family a coxed scull of Crimson-red advanced degrees. It’ll cost you about $84,000 a year to attend Harvard Business School, with tuition, housing and related expenses.

But don’t try getting a tax credit for that under a President Romney: his plan calls for eliminating this college incentive, along with doing away with an expanded credit for working families with children at home.

What else? Home mortgage. The government encourages you to load up on home debt and, in that sense, certainly pushed unqualified people into carrying oversize loans, which fed the housing collapse. That, and those tax-rewarded hedge fund managers making risky bets, helped to bring the world economy to it knees. Your tax code at work!

I’m not fluent enough in Internal Revenue Service argot to understand why I probably should have stashed some money overseas. But with a Swiss bank account and holdings in Bermuda and the Cayman Islands, Romney by example demonstrated another kind of incentive — invest in foreign countries while paying the absolute minimum in taxes to your own nation.

“I pay all the taxes that are legally required and not a dollar more,” Romney said earlier this year.

That’s the key thing: legal, always the greater scandal. I’ve been audited twice; once, I prevailed, another time my math was off. But Romney and the one-in-four millionaires who pay a lower tax rate than most middle-class Americans glide along on audit-tested breaks, courtesy of a lobbying army working night and day to preserve the absurdity of the tax code.

So, taking my cue from the social engineers who’ve manipulated the code, I’m looking to follow Romney’s example next year: work less, stash money overseas, certainly don’t pay for junior year in college. And, of course, complain about my burden.

Beezer here.  Egan nails it.  Our tax code discourages labor and its wages.  We are incredibly naive, aren’t we.

Woody Guthrie was born in Texas, July 14, 1912.  A century later his songs and their often progressive political tilt still resonate.  Consider the lyrics from ‘This Land Is Your Land,’ which Guthrie wrote in 1940.

This land is your land This land is my land
From California to the New York island;
From the red wood forest to the Gulf Stream waters
This land was made for you and Me.

As I was walking that ribbon of highway,
I saw above me that endless skyway:
I saw below me that golden valley:
This land was made for you and me.

I’ve roamed and rambled and I followed my footsteps
To the sparkling sands of her diamond deserts;
And all around me a voice was sounding:
This land was made for you and me.

When the sun came shining, and I was strolling,
And the wheat fields waving and the dust clouds rolling,
As the fog was lifting a voice was chanting:
This land was made for you and me.

As I went walking I saw a sign there
And on the sign it said “No Trespassing.”
But on the other side it didn’t say nothing,
That side was made for you and me.

In the shadow of the steeple I saw my people,
By the relief office I seen my people;
As they stood there hungry, I stood there asking
Is this land made for you and me?

Nobody living can ever stop me,
As I go walking that freedom highway;
Nobody living can ever make me turn back
This land was made for you and me.

One of Guthrie’s biggest admirers is the “Boss” Bruce Springsteen.   Here’s a video of Springsteen, alongside another big Guthrie fan, Pete Seeger, performing ‘This Land Is Your Land.’

This Land Is Your Land

Beezer here.  Romney goes around singing God Bless America as though it’s his campaign theme song.  Of course, it’s hard to find popular lyrics favoring the rich.   For good reason.

The more you learn about how an economy actually works, or doesn’t work as was recently the case, the more you realize some supposed leadership types have no idea what they are talking about.  Literally no idea.

Take for example Republican presidential candidate Rick Santorum’s scolding of Americans for their ‘immoral’ lifestyles and their tolerance of alternative lifestyles.  Professor Robert Reich makes a legitimate point that Santorum may be scolding the wrong folks.

There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Meanwhile, Paul Krugman claims applying austerity policies in our current slump not only doesn’t work, but makes things worse.   And of course Krugman supplies a link to a new academic paper about to be published that provides a factual based argument against austerity.  Krugman says it’s the equivalent of the ancient medical treatment of bloodletting:  A purge that instead of helping, makes the patient sicker.

Brad DeLong and Larry Summers have a paper in progress about fiscal policy in a liquidity trap; some of the analytics here. The bottom line, fleshed out with a lot of evidence, is one that others — including me and Christy Romer — have been arguing for a while: expansionary fiscal policy under these conditions doesn’t just aid the economy in the short run, it may well even improve the long-run fiscal prospect. And austerity may be self-defeating even in fiscal terms.

If this is right (and I think it is), austerity-loving pundits and policy makers really are like medieval doctors who believed in treating illness by bleeding their patients, making the patients even sicker, leading to more bleeding.

Meanwhile, over at Economist’s View, professor Mark Thoma highlights some recent work by economist Peter Diamond who, along with economist Emmanuel, believes the optimal maximum tax rate on income is somewhere between 50% and 70%.

…Diamond also pointed to some of his own recent research, with economist  Emmanuel Saez of the University of California at Berkeley, which found that the  optimal marginal income tax rate on the highest earners — those making $400,000  or more per year — is well above the current 36 percent, or even the 39 percent  level that existed during the 1990s.

“The Washington debate right now is between the Bush and Clinton tax rates on  the top,” Diamond said. But his work with Saez shows that a more efficient rate  for raising revenue — without significantly deterring the wealthy from trying to  earn more — is “somewhere between the tax rate at the top in Reagan’s first  administration, which was 50 percent, and the tax rate at the top from the  Johnson years up to the Reagan change, which was 70 percent.” …

And from a related article published from an MIT economics forum:

To be sure, the basic numbers on economic inequality in the United States are striking, as detailed at the event. In 1980, the top 1 percent of U.S. households earned about 10 percent of the nation’s income; today that top percentile receives about 25 percent of income. The top 10 percent of households accounted for a bit more than 30 percent of income from World War II until about 1980, but now receives 50 percent of all income

Beezer here. As Krugman always does, Thoma provides a link to the original article.  Funny how these academics insist on linking to the underlying papers instead of making statements without proper research to back them up.  Of course, if you don’t have any research to support your opinions it’s impossible to provide any.  Austerity is exactly the wrong policy.  We are not overtaxed, or at least the wealthy certainly are not overtaxed.  And if anyone has displayed anti-social or immoral behaviour it’s been coming from the top down, not the bottom up.  But none of this is about truth anyway.  It’s all about power and suppressing competition.  Not capitalistic, and not Democratic either.