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Why Rick Santorum Wants Fewer Taxpayers

One of the interesting elements of Rick Santorum’s rise has been the increasing attention paid to the fact that he’s the only guy in the field who believes strongly that the tax code should be reworked to promote and support families. It’s interesting because it stands at odds with the general Republican approach to tax reform in recent years, and it’s worth highlighting because of the decision it represents about using the tax code to promote a certain vision of society.

You’re by now probably well familiar with the statistic that approximately 47% of Americans pay no taxes. That’s actually inaccurate – they do pay a number of taxes, as everyone does – just not federal income taxes. Why don’t they pay federal income taxes? The answer might surprise you.

As it turns out, the largest statistical reason for the growth in the percentage of Americans who pay no taxes is the increase in the child tax credit under Republican leadership over the past decade.

Let’s rewind to 1998, when Newt Gingrich was Speaker of the House. Republicans came up with the idea of a $400 tax credit, intended to lighten the tax load on working families and high-child-producing social conservatives. Signed into law by Bill Clinton, the child tax credit didn’t stay at $400 – it expanded dramatically under George W. Bush, as he and the GOP Congress sought to please their base. They more than doubled the credit, which had the consequence of pushing more and more households into the category of paying no federal income taxes.

According to the Tax Foundation, in the period from 2000 to 2004 alone, this expanded child credit accounted for increasing total nonpayers by 10.5 million, a 32-percent jump. In 1997, before the child tax credit was introduced, under 20% of federal returns had no tax liability—today, as you know, it’s  47%.

Now, few Republicans are willing to admit that the high number of nonpayers today is in large part due to their use of the tax code to further their view of society.  Some, such as Michele Bachmann, have decried the fact that there are so many non-payers, calling them “freeloaders” and the like.

This puts conservatives in an unfortunate position. Either they have to walk back this talk about broadening the tax base, or they have to raise taxes on their middle and lower-middle class child-producing base at a time when birth rates are already dropping. (Hey, we need those kids to fund entitlements!).

For Santorum, the decision is easy: he triples down on the child tax credit approach. As the Tax Policy Center notes, Santorum’s tax approach would triple the exemption for dependent children, which “would likely add significantly to the number of households that pay no income tax.”

Now, fewer people paying income taxes isn’t a bad thing, from my perspective or Milton Friedman’s, as long as government is simultaneously cut back (my favorite president, Calvin Coolidge, cut the government to the point where only 2% of Americans paid federal income taxes). But where and what would Santorum cut? Without significant cuts, his tax plan would likely explode the deficit even further. And I have my doubts whether Santorum’s approach would lead to the kind of economic recovery a flat tax would spawn to compensate for such steps.

For the rest of the candidates in the field, whose tax plans you can compare and contrast here, most have endorsed expanding the tax base and making more of these 47% of Americans pay. But what they ought to be emphasizing that the best way to expand the tax base is not through redistribution of tax receipts depending on who’s in power in Washington (and whether they love families or not), but by getting more Americans working, and in higher wage jobs. Unfortunately, that takes time, and may have more to do with education reform than tax reform.

  1. The King Prawn
    James Of England

    I agree that Santorum’s plan, like Newt’s, is more generous to non-taxpaying parents. You were saying, though, that you disliked the effect as applied to your finances, though, which would (by your descriptions of the impact, if I recall them right) be bigger under Perry than under Santorum, or under the current system. Again, worse still under Newt (who would give, if I have the math right, negative returns to households of four earning six figure sums). · Jan 4 at 11:35pm

    If I recall correctly, I used my own numbers as an average representation of the positive effects tax credits can have around the median and how difficult it will be to wrest credits from those who benefit. It would suck to have to give up my credits, but it would be the right thing to do. Perry’s plan may even go too far for me philosophically even if it is personally financially beneficial. I have all my tax documents and can run an estimated comparison between the current system and the Perry plan if you like. I only use my numbers because I have specifics and they’re median-ish.

  2. James Of England
    Ben Domenech

    I certainly think it’s possible Santorum has cuts in place to make it fiscally manageable (not sure you can get that from Medicare, at least not for a few years – maybe under Rand Paul’s approach). I’d like to learn more about those – but these things don’t need to be budget neutral (from my perspective) if they spark economic benefit which offsets the deficit hit. · Jan 4 at 7:29pm

    Glancing at his site for other reasons, there’s some stuff here that both speaks to his trade credentials and represents some medium term cuts (before the first comma):

    Eliminate all agriculture and energy subsidies within four years letting the markets work, eliminate resources for job killing radical regulatory approaches at the EPA and refocus its mission on safe and clean water and air and commonsense conservation, eliminate funding for Planned Parenthood and support adoption, reduce funding for the National Labor Relations Board (NLRB) for extreme positions undermining economic freedom, eliminate funding for implementation of ObamaCare, and eliminate funding for United Nations organizations that undermine America’s interests.

    By the way, KP, you might want to note Santorum’s horrible rambling sentence here.

  3. James Of England
    The King Prawn

    If I recall correctly, I used my own numbers as an average representation of the positive effects tax credits can have around the median and how difficult it will be to wrest credits from those who benefit. It would suck to have to give up my credits, but it would be the right thing to do. Perry’s plan may even go too far for me philosophically even if it is personally financially beneficial. I have all my tax documents and can run an estimated comparison between the current system and the Perry plan if you like. I only use my numbers because I have specifics and they’re median-ish. · 

    I’m fine with you using your own or any other examples. I was just surprised that in your chosen not-so-hypothetical you seemed to support an outcome from Perry’s plan and then oppose a very similar outcome from Santorum’s. I now gather that this is because I misread your ambivalent support for Perry’s plan as wholehearted support (if I recall correctly, I was quite focused on a slightly different question, and so prone to misreading that sort of thing).

  4. Chris Campion
    Ben Domenech: But what they ought to be emphasizing that the best way to expand the tax base is not through redistribution of tax receipts depending on who’s in power in Washington (and whether they love families or not), but by getting more Americans working, and in higher wage jobs. Unfortunately, that takes time, and may have more to do with education reform than tax reform. ·

    If you mean by dismantling the student loan program, reducing college revenues nationally, and forcing them to choose to teach valuable courses versus, well, less than valuable ones, I’m all for it.  You’ll have better luck there than you would trying to dismantle state and local teachers’ unions.

    But education reform isn’t going to get anyone working in the short term, while tax reform would get people working almost immediately.  A word for “faster than immediately” would also be appropriate here, if we could get significant or sweeping tax reform in place, and a mechanism that prevents the easy changing or manipulation of the tax code for political purposes.  Then you’d see growth in corporate investments, and an economic boom.

    Until then, education has nothing going for it.

  5. Paul A. Rahe
    C

    This is instructive, Ben, and well worth thinking about. The policy has a longer history than you indicate.

    Back in 1944, Gunnar Myrdal gave a series of lectures at Harvard, warning that social insurance (Social Security and social democratic programs providing for medical care in Europe) would dramatically reduce the incentives for the procreation and rearing of children and produce a demographic crisis that would, in turn, threaten social insurance (all of which has since happened). He recommended the passage of programs designed to encourage childbirth.

    Harry Truman soon followed suit. In consequence, my father, who made $3000 a year or so in 1950 and had a wife and three children, paid no income tax. Congress and subsequent Presidents let this atrophy. The tax deduction (or was it a credit at the start?) sat at the same level for more than thirty years. If I remember correctly (someone should check this), Reagan picked up the issue again and increased the deduction (or credit, whichever it was). In this particular, Santorum is his heir.

    If we were to abolish Social Security and Medicare outright, it would make sense to get rid of the tax credit. If not, . . . well, think about it.

  6. Scott R
    Paul A. Rahe:

    Back in 1944, Gunnar Myrdal gave a series of lectures at Harvard, warning that social insurance (Social Security and social democratic programs providing for medical care in Europe) would dramatically reduce the incentives for the procreation and rearing of children and produce a demographic crisis that would, in turn, threaten social insurance (all of which has since happened). He recommended the passage of programs designed to encourage childbirth.

    That’s the necessary context for understanding our natalist tax code. We’ve had to swallow this spider because we previously swallowed that fly.

    Ah, the unintended consequences of government. 

  7. Michael Tee

    Hey! I have the answer over here.

    He wants fewer tax payers because he’s a managerial progressive who wants to influence people’s behavior through manipulation of the tax code.

    He wants to make a regulation so complicated because there’s a huge lobby (rent seekers) and an enormous bureaucracy who will remain employed in their chosen profession.

    As Charles Adams noted: “From the earliest records of civilization, tax laws have taken away liberty more often than foreign invaders.”

    The tax code kills civil liberties and Santorum wants to advance that cause.

  8. Guruforhire
    Paul A. Rahe: This is instructive, Ben, and well worth thinking about. The policy has a longer history than you indicate.

    If we were to abolish Social Security and Medicare outright, it would make sense to get rid of the tax credit. If not, . . . well, think about it. · Jan 5 at 5:25am

    It appears to have not worked, so we should dispense with it.

  9. Michael Tee

    Oh, this is someone who’s serious about taxes.

    Santorum said he chose 28 percent as the top rate, “Because that’s the top level Ronald Reagan put in place, and if it is good enough for Reagan on taxes, it’s good enough for me.”

    That’s the kind of intellectual heft I want in my President. The same excuse my 7 year old uses when he does something wrong: “Well Reagan did it.”

  10. liberal jim

    I marvel that no one seems to grasp the degree of government interference that has been fostered by both parties.   If there was no interference in the mortgage industry probably only 5 – 7 year mortgages would be available and they would require putting 50% down and the rates would most likely be twice what they are now.  Working poor people who are receiving government subsidies face a 70% effective tax rate once they have reached a given earned income level and yet people talk as if they don’t understand why they are careful not to exceed(on the books) this level.  Most everyone living in lower income neighborhoods understand the economics and behave accordingly. There are hundreds of other distortions. Only reducing the size and scope of government will make a difference.  Tinkering with tax codes  is like rearranging the furniture in a burning house.

  11. James Of England

    Santorum has been one of Ryan’s more enthusiastic backers, opposing the Ryan-Wyden compromise as too weak. Amongst other places, then, the money would come from Medicare. As a key author of welfare reform in the ’90s, he’s got a further reforms to that. Santorum is one of the more serious cutters in the field. While my recollection from your “pick your candidate” results is that you weren’t a big traditional marriage fan, I’d have thought that you’d give credit to the degree to which most of the supporters for financially supporting those who invest much of their time, effort, and money in raising the next generation of Americans right do tend to be sound fiscal conservatives, too.

  12. Nobody

    But it’s for the children!

    Oh, wait…isn’t that a Democrat meme?

  13. The King Prawn

     It is not just those who pay no federal income taxes who benefit from the child tax credit. Not taking the credit for my two children would triple my tax burden. It’s nice to get it, but I think a more reasonable method would be to reduce my taxable income. The direct subsidy form just doesn’t feel right even if I use it responsibly.  

  14. Nobody

    So our new front-runner wants to amp up the use of the tax code for social engineering.  

    Great.

    Man, I miss Steve Forbes.

  15. Ben Domenech
    C
    James Of England: Santorum has been one of Ryan’s more enthusiastic backers, opposing the Ryan-Wyden compromise as too weak. Amongst other places, then, the money would come from Medicare. As a key author of welfare reform in the ’90s, he’s got a further reforms to that. Santorum is one of the more serious cutters in the field. While my recollection from your “pick your candidate” results is that you weren’t a big traditional marriage fan, I’d have thought that you’d give credit to the degree to which most of the supporters for financially supporting those who invest much of their time, effort, and money in raising the next generation of Americans right do tend to be sound fiscal conservatives, too. · Jan 4 at 7:13pm

    I certainly think it’s possible Santorum has cuts in place to make it fiscally manageable (not sure you can get that from Medicare, at least not for a few years – maybe under Rand Paul’s approach). I’d like to learn more about those – but these things don’t need to be budget neutral (from my perspective) if they spark economic benefit which offsets the deficit hit.

  16. Ben Domenech
    C
    The King Prawn:  It is not just those who pay no federal income taxes who benefit from the child tax credit. Not taking the credit for my two children would triple my tax burden. It’s nice to get it, but I think a more reasonable method would be to reduce my taxable income. The direct subsidy form just doesn’t feel right even if I use it responsibly.   · Jan 4 at 7:14pm

    Exactly. The thing I generally dislike about this approach is that it can just as easily be misused by future administrations. The advantage of a flat tax approach is that it’s much more difficult to engage in social engineering (even a kind I agree with!) through the tax code. The power to do the right thing usually comes with the power to do the wrong thing, too.

  17. outstripp

    Democrat: Vote for me and I will give you free stuff.

    Republican: Vote for me and I will give you a special tax break.

  18. Ben Domenech
    C

    Oh, and James of England: my real disagreement with Santorum is on trade and union policies, which I will endeavor to write about soon. I think his tax plan is still an improvement from the current path and is generally a good thing, though not the change I would like to see toward a more fundamentally different approach to taxation.

  19. Scott R

    Hurray for Santorum.

    This 47%-are-freeloaders silliness has been a conservative canard for some time. It ignores the fact that most people progress through the tax brackets as they age; that is, we start out relatively poor as we enter the workforce and start a family, and then we rise in income and wealth (and hence tax burdens) as we age.

    Even the supposed “flat taxers” like Perry concede this point, without actually saying so (since they still enjoy getting mileage out of the “half the population pays for the other half” rhetoric): His flat tax exempts the first fifty grand in income for a family of four, a fact which, when combined with the option to participate, guarantees that the 47% will grow, not shrink.

    If nothing else, Santorum will do the conservative movement a good deed by setting it straight on this issue.

  20. Scott R

    Also, note that the Europeans, with their VATs, have significantly flatter taxes than us. And they don’t have kids. No surprise.