E.J. McMahon is a senior fellow at the Manhattan Institute for Policy Research and its Albany-based Empire Center
In his controversial "47 percent" remarks, Mitt Romney nailed one fact: Nearly half of Americans do not pay income tax.
But as critics on both the right and left pointed out after details of Romney's private dialogue with some wealthy donors emerged last week, the Republican presidential candidate was wrong to suggest that the same 47 percent are "dependent on government" and "believe that they are victims." Many nonpayers are actually hardworking low-income people benefiting from tax credits designed (with strong Republican support) to encourage self-sufficiency. And most of them are still subject to federal Medicare and Social Security payroll taxes.
Besides, a given household's zero tax liability isn't necessarily permanent. For example, the kind of risk-taking entrepreneurs understandably offended by President Barack Obama's "you didn't build that" comment may go broke one year, and thus owe no taxes, only to make a big taxable profit in the next. That, at least, is the way it is supposed to work in a healthy, growing economy. And how to get the nation back on a sustainable growth track is a central issue of the campaign.
Summing up the 47 percent affair, which needlessly detracted from the Republican candidate's core message, editor Rich Lowry of the conservative National Review observed that Romney had "made a bad point badly."
By contrast, State Senate Majority Leader Dean Skelos (R-Rockville Centre) made no discernible point at all when he cited the same statistic in a very different context: the State Legislature's vote last December on a tax package that combined the temporary extension of a big "millionaire's tax" hike with token temporary income tax cuts for the middle class, plus the permanent elimination of a mass transit payroll tax on small firms in metropolitan New York.
"I think it's very important to point out that in New York State," said Skelos, explaining his support for the bill, "53 percent of the people are paying the personal income tax that's received by the state. Forty-seven percent of the people of the state don't pay a nickel. And, in fact, there's close to a billion dollars that's . . . sent to people that are not paying any taxes in this state. If it continues in this direction, we will not be an affordable state to live in."
The $1 billion Skelos referred to is the state's counterpart to the federal earned income credit, which supplements the wages of low-income workers. As of 2009, state tax department data show the credit was claimed by some 1.4 million households, many of which were also among the 800,000 income-tax filers claiming a total of $342 million in added refundable child tax credits.
New York's nonpaying 47 percent also included roughly 300,000 households with state and local pension income, which is exempt from state income tax, and a half-million retirees with private pension and annuity income, which is partially tax-exempt. Of course, directly or indirectly, 100 percent of New Yorkers who pay no state income tax are still subject to state and local sales taxes, excise taxes, property taxes, fees, tolls and other charges.
The Senate leader wasn't actually calling for repeal of any income tax breaks, "affordable" or not. Instead, he was marshaling support for what actually amounted to a net state income tax increase of more than $1.5 billion. Skelos' spin obscured what the legislature and Gov. Andrew M. Cuomo were really up to: perpetuating state government's dangerous over-reliance on taxes generated by the volatile incomes of a relatively small number of multi-million-dollar earners.
For all his mangling of the 47 percent statistic, Mitt Romney clearly aims to reduce dependency on government by promoting private economic growth with a reduction of tax rates across the board. Skelos and his colleagues should embrace the same goal in New York State.
E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.