Under fire for telling campaign donors that 47 percent of Americans are "dependent on government" and pay no income taxes, presidential candidate Mitt Romney has offered this clarification: What he wants is for more Americans to have jobs good enough that they do pay taxes.
“I do believe that we should have enough jobs and enough take-home pay such that people have the privilege of higher incomes that allow them to be paying taxes," the Republican nominee said in a Fox News interview Tuesday.
"The problem right now," he added, is "so many people have fallen into poverty that they’re not paying taxes. They have to rely on government.... The right course to help them is not just to have government handing out but instead government helping people to get back to good jobs.”
His words, from a political standpoint, were obviously aimed at deflecting criticism that his earlier comments – released this week after being videotaped secretly at a May fundraising event – were insensitive to many Americans who don't view themselves as reliant on government handouts.
But Mr. Romney's response also points to a serious challenge for the US economy: how to create not just more jobs but more good-paying ones.
At a time when Americans already put jobs at the top of their agenda, some recent reports have underscored broad challenges in the US labor market:
• Not only is job creation weak, but wages have continued to stagnate since the Great Recession officially ended in mid-2009. Inflation-adjusted hourly earnings have fallen a bit in the past three years. That helps explain why another gauge, the real median household income, also went down last year, according to a Census Bureau survey released this month.
• Some 46 million Americans were officially in poverty last year, the Census survey found. That number was essentially unchanged for the year even as the job market improved. The US Labor Department estimates that some 10.5 million people as of 2010 were "working poor," living below the poverty line while spending at least 27 weeks working or seeking jobs.
• Another study has sought to quantify the share of employed people in the US who have "good jobs," and concludes that this share was falling even before the recession hit. The Center for Economic and Policy Research defined "good job" as one that pays at least $37,000 per year, has employer-provided health insurance, and has an employer-sponsored retirement plan such as a pension or 401(k) plan. About 25 percent of US jobs fit that definition in 2010, down from 27.4 percent in 1979.
The Center for Economic and Policy Research is a liberal group, but the message of its study is salient for Americans of all political stripes. Republican voters care about health insurance and jobs, like Democrats do, although the two camps differ on how to boost US prosperity.
The US economy has become much more productive since 1979, measured by what a worker can produce in a typical hour of work. Yet the share of jobs earning $37,000, or about $18.50 per hour, has risen only modestly since then, from about 41 percent in 1979 to 47 percent today. Declines in health insurance and retirement benefits over that time, meanwhile, account for the overall slippage in "good jobs."
For his part, Romney has set a target of seeing the US create 12 million new jobs in four years.
Some forecasters don't believe 3 million new jobs a year will be a big stretch, whether the president is Obama or Romney. But achieving that goal would require a significant pickup from the recent pace. US employers have added 1.8 million new jobs in the past year.
Say that goal is achieved during the next presidential term. What would it do to the number of Americans owing income taxes – and to the poverty rate?
A solid economic recovery would make a difference on these fronts. Exhibit A is a number that Romney himself cited: When he said that 47 percent pay no federal income taxes, that appeared to be a reference to a study by the Tax Policy Center, finding that 46 percent of Americans paid no income tax in 2011. But before the recession, when the job market was stronger, that share was more like 40 percent.
According to data gathered by the nonpartisan Tax Policy Center for the 2009 tax year, some 25 percent of single people with income between $10,000 and $20,000 owed some federal income tax. The share of people owing the tax rose steadily with income. Nearly two-thirds of singles with income of $20,000 to $30,000 owed some tax.
So even the creation of relatively low-paying jobs can result in many more people paying federal income taxes.
Ditto for reducing poverty. Even a low-wage job could lift a single person above the poverty threshold ($11,484 as of 2011). Only about 4.2 percent of people who were usually employed full time in 2010 were classified as "working poor," the Labor Department says. But for people who had only part-time work, 15 percent were classified as working poor.
If 12 million jobs were created, it's hard to know how many of them would go to people now in poverty. But history suggests that the poverty rate can decline significantly during recoveries from deep economic slumps. One example: After peaking at 15.2 percent in 1983, the poverty rate declined to 13.4 percent four years later. A similar decline today might reduce the number of Americans in poverty by 3 million people.
One final thought: Lots of people who don't pay taxes now still wouldn't owe taxes even if the job market fully heals.
An April report by the Brookings Institution's Hamilton Project notes that "many households with no tax liability are young or old, meaning that they are likely to be led by students who subsequently will pay taxes or retirees who paid taxes over their lifetimes."
The study found that for working-age Americans, the share who pays no federal income tax ranges from about 20 percent (for the early-50s age group) to about 35 percent (for people in their early 30s). This tally used numbers from a 2008 government survey.
Moreover, millions of Americans pay other taxes (payroll taxes or state taxes, for instance) even if they owe no federal income tax.