Mitt Romney video and the 47 percent: Who doesn't pay income taxes?

In a video of a May fundraiser, Mitt Romney says his message can't connect with the 47 percent of Americans who don't pay income tax. Mostly, these people are poor or elderly.

Jim Young/REUTERS
Republican presidential nominee Mitt Romney steps off his campaign plane in Salt Lake City Tuesday.

Which US households don’t pay income tax? That’s become a big issue Tuesday thanks to the leaked video of Mitt Romney dismissing them at a Florida fundraiser.

In the video GOP presidential nominee Mr. Romney talks about the difficulties of winning over people he says are “dependent” on government and see themselves as “victims.”

“Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn’t connect,” he said.

Romney’s right about the non-income-taxed slice of Americans. It’s an issue that conservatives as a whole have been talking about for some time. About 46 percent of US households owed no income tax in 2011, according to an estimate from the Urban Institute-Brookings Tax Policy Center. In 2008 and 2009 – the epicenter of the Great Recession – that figure was even higher, at 51 percent.

That last figure hints at one aspect of this number – it’s been boosted quite a bit by recent hard economic times. In 2007, the figure was 40 percent, which is closer to its recent historic level.

Still, 47 percent is a lot of people. Who are they?

Well, about half of them don’t owe income tax for the simple reason that they don’t make enough money. A couple with two children with income of $26,400 had no income tax liability in 2011, due to an $11,600 standard deduction and four exemptions of $3,700 each, according to the Tax Policy Center (TPC).

“The basic structure of the income tax simply exempts subsistence levels of income from tax,” wrote TPC’s Roberton Williams in an analysis of these figures last year.

The other half of the untaxed (that’s equal to about 23 percent of total US households, just to confuse you with more figures) claims their status due to particular tax breaks.

Many of them are seniors who benefit from the exclusion of some Social Security income. The elderly make up about one-fifth of all non-income-tax-payers. The other big chunk is parents who benefit from tax credits for children and the Earned Income Tax Credit (EITC).

Support for the EITC often splits along party lines, with Democrats pushing for a bigger such refundable tax credit, and Republicans pushing to curb or even eliminate it. But as Keith Hennessey, director of the National Economic Council under President George W. Bush, points out, it is the child tax credit that has driven the increase in the numbers of non-income-tax-payers in recent years, as the value of the credit on a per-child basis has risen rapidly under presidents of both parties.

“Most of the increase since the mid-1990s in the number of people who owe no income taxes is the result of the child tax credit,” Mr. Hennessy writes on his personal blog. “This policy was created by Congressional Republicans and expanded with Republicans in the lead.”

One last note: paying no income tax is not the same thing as paying no federal taxes. Many zero-liability households still ante up for payroll taxes that fund Medicare and Social Security, among other things. According to an analysis from the left-leaning Center on Budget and Policy Priorities, even the lowest quintile of US income earners pay about 9 percent of their income to Uncle Sam in payroll tax.

“When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average,” according to the CBPP.

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