Wednesday, 19 September 2012

We are the 53%

Mitt Romney's "47%" speech has presented so many shootable fish in a barrel that we're at risk of misunderstanding the barrel. Pointing to the hypocrisy of a man who only pays 14% income tax, or even the hypocrisy of an audience of investment bankers who think it virtuous to avoid tax altogether, is as relevant as criticising the Republican candidate's poor grasp of Middle East geography when most Americans would struggle to identify any country outside the USA on a map, with the exceptions of Canada and Mexico.

Given his less extreme record as Governor of Massachusetts, and his reputation for inconsistency, both of which were targeted by his opponents during the primaries, Romney has tried hard to convince Republicans that he is genuinely right-wing. The resulting gaffes may disgust those who had no intention of voting for him anyway, but they may also shore up his core support. As the video makes clear, he is actually arguing that the election will be won by whoever secures the lion's share of the small percentage of "independent" or swing voters. This is a strategy that would have made perfect sense to Tony Blair and Philip Gould. Indeed, his remarks about Palestine may well be a calculated attempt to win over Jewish independents, as well as reassuring committed Republicans of his pro-Israel credentials. There's no mileage in chasing the pro-Palestinian vote.

The claim that 47% don't pay income tax is disingenuous, but it's red meat for an audience, brought up on Ayn Rand, that thinks that everyone outside its own circle is a moocher. The belief that American enterprise has been sapped by government handouts and the evolution of an entitlement culture flies in the face of the facts. Most of the quoted figure pay payroll taxes, not to mention sales and state taxes, and only avoid federal income tax because they are low-paid. Of the much more modest figure of 18% who pay neither federal income tax nor payroll taxes, 10% are retirees (who will mostly have paid tax in the past) and 7% are too poor (and probably unemployed, so may pay tax in the future), which leaves the free-rider population at around 1% (and many of those are "well off" types with clever accountants).

The reason why there is a growing number of people in the US who pay payroll tax but not income tax is due to the combined effects of stagnant wage growth and the incremental raising of tax-free allowances. The same trend has been evident in the UK for some time. Today, you start paying NICs on annual income over £5,564, but income tax does not kick in until £8,105, and this latter threshold is due to rise to £10,000 in 2014. On both sides of the pond, the policy of "lifting millions out of income tax altogether" has been pursued by both conservatives and liberals, thereby reinforcing the view that income tax is uniquely bad, but also leading in practice to its growing social exclusivity. As revenue is a necessity, this has in turn led to greater reliance in the UK on NI and VAT, both of which are more regressive than income tax.

As I've noted before, removing people from income tax is a double-edged sword. One moment the beneficiaries are hard-working families emancipated from the dead weight of government, the next they are free-loaders sucking the blood of the virtuous tax-paying majority. We're the 53%, and we're not going to take it any more! As night follows day, the small band willing to defend Romney (or at least wind-up liberals) have deployed the cry "no representation without taxation". This is the mean truth at the heart of Romney and his audience's worldview. Tax is for the little people, but government is for the rich. It's a real threat to democracy. That is the barrel.

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