Contrary to Political Rhetoric, Tax Code Is Already Helping the Poor

September 5, 2007

The lead editorial of today’s Washington Post (“The War on Poverty”) applauds New York Mayor Michael Bloomberg’s proposal to expand the Earned Income Tax Credit “as the next phase in the war on poverty.” The presumption behind this proposal is that the tax system is not doing enough to help low-income Americans. Nothing could be further from the truth.

Over the past few decades, lawmakers have turned the IRS into an ATM machine for dispensing all manner of social and economic benefits. For example, the IRS will dole out roughly $50 billion in refundable tax credits—$35 billion in refundable EITC checks and another $15 billion for the refundable portion of the child credit.

The reason, of course, that these households receive a “refundable” check is that they have no income tax liability to begin with. Indeed, roughly 44 million Americans will pay zero Federal income taxes after they take advantage of all of the credits and deductions (such as the $1,000 per-child credit) available to them. The number of these non-payers has grown 50 percent since 2000 because of the expansion of the child credit, the new 10 percent tax bracket, and marriage penalty relief.

Add to these non-taxpayers an additional 15 million Americans who earn some money, but not enough to have to file a tax return, for a total of nearly 60 million Americans outside of the income tax system.

In calling for more “tax cuts” for low-income people, poverty advocates ignore the vast infrastructure of government that is geared toward equalizing incomes in society. A recent Tax Foundation study estimates that governments at all levels redistribute more than $1 trillion from the top 40% of American households to the bottom 60% of households. This means that the majority of American households get more back from government than they pay in taxes.

Yes, John Edwards, there are two Americas but you have the signs backwards.

The lowest-income households get $8.21 in government spending for every dollar they pay in taxes, while middle-income households get back $1.30. The highest-income households get back 0.41 cents for every dollar they pay in taxes.

What taxpayers deserve is a moratorium on using the tax code for social and political causes and a national discussion of how much redistribution government should engage in.

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