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Stimulus, Non-Payers, and Class Warfare

2 min readBy: Nate Bailey, Scott Hodge

Following the president’s news conference outlining his thoughts on fiscal stimulus, Senator Hillary Clinton released a statement saying, among other things:

“For the White House to propose spending over $100 billion to jumpstart the economy, while shortchanging assistance to the 50 million families who are struggling the most and are most likely to inject those funds into the economy makes no sense… it would disproportionately leave out African American and Hispanic families who have, on average, lower incomes than white families.”

These talking points have been echoed or “confirmed” by many, including Bob Greenstein of the Center on Budget and Policy Priorities, who said:

“First, the reported Administration plan would provide either no taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rebate or only a partial one to 49 million working households – some 30 million of which would receive no rebate at all. Millions of additional households without earnings, such as low-income seniors on fixed incomes who do not file tax returns, also would receive no rebate, bring the total number of households who would not benefit or receive only a partial rebate to 77 million.”

Why is this the case? Who are these 50-77 million Americans who would not receive an income tax rebate?

People who don’t pay anything in income tax.

As the federal income tax has become more progressive, more and more Americans have been completely knocked off the tax rolls. In 2005, we estimated the total number of filers with no tax liability to be over 43.8 million. Add in typical growth over time, and people who don’t file because they have little-to-no income at all, and we arrive at the 50-77 million figures cited by both Senator Clinton and Mr. Greenstein.

Just to be clear, that means half of the households in America have no income tax liability – a number that’s grown 50% since Bill Clinton left office and the Bush tax cuts were enacted.

So do the working poor get nothing from the federal government? No – and in fact, quite to the contrary. The working poor are the biggest beneficiaries on the other side of the federal fiscal coin: spending.

In early 2007, the Tax Foundation released a ground-breaking study comparing the amount of taxes paid by individuals versus the dollar values of government spending received.

The results show that the bottom 20% of households receives $14.76 in federal spending for every dollar paid in federal taxes. On the other end of the spectrum, the top 20% of households receive 32 cents in federal spending for every dollar paid in federal taxes.

In fact, as the chart below shows, the bottom 20% receive $23,176 more per year in federal spending than the pay in federal taxes. The top 20% pay $38,939 more in federal taxes than they receive in spending. This is in no small part due to the fact that so many low-income families have no income tax burden after applying their credits and deductions.

As Investor’s Business Daily points out today, “No honest person could look at the data and say that the system favors the rich over the poor.”