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On this election season there's been a lot of talk about the millions of Americans who don't pay income taxes in fact a higher percentage of Americans do not pay taxes that federal income taxes today than ever before.
Take a look at this graph this is really telling about the fact that you have.
At one point he had about 16%.
Was the low water mark about 16% of people did not pay federal income taxes.
And today were up their.
Close to 50%.
The joining me now is bear and senior editor Jack -- and the Tax Foundation president Scott -- -- start with you Jack I mean this.
This is what gotten hurt Mitt Romney and probably going to be talking about the 47%.
-- and there's been a lot in talk radio about the 47% -- don't pay federal income taxes but it did.
Quickly became clear because of the backlash that not everybody that doesn't pay federal income taxes -- -- -- -- remembering who who looks at their pace Stav now's the you've got the income tax you -- you've also got the payroll taxes and -- disproportionately hill before blowing -- -- if you think those in the consideration.
The 47% is really the 28%.
We've got a lot of seniors the aging of America we've got a recession on some people have their incomes and.
All right I know -- -- -- all the protective but still I think the real key behind this is.
It's gone from 16%.
Of people who don't pay federal income -- of almost fifty.
There's a lot of -- out there for broadening the tax base ethical I think those arguments of fair we just need to be careful about.
Not trying to paint a picture of suddenly half the country is trying to shirk its tax responsibility -- certainly a low income fell into getting a great deal tough out there -- a lot of people like I think that the people out there who were having a work.
Part time because they can't find a full time job and and and they and they do you don't pay federal income taxes to they get tax breaks from that.
I don't I think -- be glad to trade their situation for one where they have a better income more taxes.
No question an end yet at the same -- -- -- this gets into that that point about the fact that we we hear stories all the time about people that are abusing gaming the system.
Free phones free in this whatever might be -- but but.
When Robin made the comment about the 47% -- finding out now that a lot of those people are elderly retired seniors.
They're not paying taxes and that rightfully they should not they're they have low income but.
How or what not what percentage of that are the people that are gaming the system.
Well I -- -- disagree.
You know the the tax code is always protected the poorest of the poor from income taxes going back to 1913.
When we first got the the income tax.
The non payers have been expanded it well into the middle class and lower middle class.
Because we've turned the IRS into an ATM machine.
For will -- social benefits.
Through the use of of dozens of new tax credits such as the child credit.
That's -- that the tax credit for buying a hybrid vehicle.
For replacing the windows in your house.
For adopting child for putting your kid in daycare.
All of these things in which congress and the White House have decided instead of the creating new spending programs we're gonna create new tax programs.
The deliver the same kind of benefits and so now we have about half of as you mentioned half of all -- to pay no income taxes.
Whatsoever and a large portion of those people are getting cash back in the form of refundable tax credit but effect beyond the IRS is giving out a hundred billion dollars a year.
In refundable tax credits to people who pay no income taxes.
And most of those people are not war and they're not elderly they're there in the lower middle class -- is beginning to creep up the incomes get this.
This is the the problem I have isn't affected.
There are these credits -- an end to be fair it's most of these credits came from Republicans.
In prior administration out but it was a big mistake still doesn't -- analysis credits try and take them back you're never gonna get those back without somebody -- -- and about double what you have.
You -- you have to do through fundamental tax reform we get a huge debate.
In America about the UC IRS.
A -- that we've created a super agency in the IRS it's extended and all manner of things in which it shouldn't be doing it should should should simply be.
Collecting income taxes and -- in other taxes it shouldn't be an agency.
For delivering welfare benefits and that's what we've turned it into today we needed to debate about that.
And I think we need to turn back the clock and go back to a time in which the iris was not such a super agency -- The big the big thing is the change -- we bond from sixteen to fifty.
It's gotta be more than just the recession.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- So the question hear your question is how to we undo this what do we do.
You know if if we looked at the presidential debate this past week we heard Mitt Romney talk about.
It is kind of vague on the details but some sort of thing where we make some wholesale reduction in the amount of credits and exemptions and deductions that people can qualify for.
I've heard this idea before some people talk about capping it at a percentage of income or capping -- at a dollar amount.
What's -- feasible way to make a big change in amount of revenue we collect and it's one that won't necessarily hit.
Lower income people unfairly it might be the most reasonable idea to get something like this done because we try to go item by -- and -- We're taking your mortgage interest deduction -- taking your charitable com.
-- -- -- -- There's going to be unified does it operative arm what are you hear you're there a year and you -- ears on the walls and Washington are they talking about the seriously.
Well certainly our Romney has already floated the idea of capping deductions -- 171000 dollars or some amount.
As a very very crude way of addressing this issue.
It's also -- it in in a way it's that it it's politically Smart because you don't really have to take on the interest groups but it's also it's politically wimpy.
You be in this is that this is the kind of approach that got us the Alternative Minimum Tax.
Congress didn't want to deal with the the do address the interest groups directly so created AMT.
In order to do much the same thing.
We've got to have wholesale reform it's the only way to do it let's scrap as many as these -- things as possible in lower tax rates across the board.
That's the only way to really deal with that -- they're doing these posts -- these these ad hoc approaches just muck up the tax code and -- that kind of tax system that we -- That you hit the nail on the head is all these ad hoc approaches which is why we're in the -- rim but they're not gonna do anything to you get up you'll get a do over on some like attack -- they do over in stark contrast there.
Start echoed over again -- director I don't wanna see that but I'll tell you this doesn't -- happen nothing's gonna happen before an election on a guarantee you.
-- now and Scott Hodge -- --