WASHINGTON – Eleven years ago, eliminating income taxes for low-income Americans was an applause line for a Republican president. The party's candidate for president in 2012 sees the number of people paying nothing as a problem.
Mitt Romney's comment that 47 percent of Americans pay no income taxes and see themselves as "victims" dependent on government signifies a shift in the party's thinking. Republicans backed refundable tax credits and expanded entitlement programs under President George W. Bush. Now they want to cut back entitlements and contend that voters without a stake in the tax system will seek more benefits.
"What you have is high-income Americans paying for all of the entitlements that the lower-income Americans don't pay for" as well as funding the rest of the government, said Douglas Holtz-Eakin, chief economist to Bush's Council of Economic Advisers in 2001 and 2002. "If you're a small-government conservative, you have to think about whether this is where you wanted to end up."
Elderly Americans and low-wage workers make up most of those who don't pay income taxes. For 2011, 46 percent of households didn't pay federal income taxes. About half didn't pay because of standard deductions and personal exemptions designed to exclude subsistence levels of income from taxation.
The rest received tax breaks including the earned income tax credit, the child tax credit, an exclusion of combat pay and tax benefits for older Americans such as the exclusion of Social Security benefits from income.
Romney's comments at a private fundraiser don't fit with Republicans' anti-tax ideology, said Michael Linden, tax and budget policy director at the Center for American Progress, a Washington group typically aligned with Democrats. Romney said in the video that he couldn't attract votes from people who depend on government or persuade them to "take personal responsibility" for their lives.
"To some degree, I don't understand why they're not trumpeting this," Linden said. "The working people who don't pay income tax, that is by and large the result of Republican policies."
Bush, for example, promoted his 2001 tax cut to the public in part because it would prevent some people from paying taxes.
"People with the smallest incomes will get the highest percentage of reductions," Bush said in his first speech to Congress on Feb. 27, 2001. "And millions of additional American families will be removed from the income tax rolls entirely."
By doubling the child tax credit, creating a 10 percent tax bracket and eliminating capital gains taxes for middle-income earners, Bush did exactly that. He also backed the expansion of Medicare to cover prescription drugs.
Non-payers still pay state and local taxes, including sales taxes and payroll taxes, which fund Medicare and Social Security.
"Half of them are people that are just plain old poor," said Roberton Williams, a senior fellow at the Tax Policy Center, a nonpartisan group in Washington. "And the other half are people that aren't very far out of that poor category, but get some tax breaks."
The increases in the percentage of people not paying income taxes and receiving benefits have bipartisan roots. Republicans long supported the earned income tax credit and the child tax credit. Democratic presidents created the largest entitlement programs – Social Security, Medicare and Medicaid.
Republicans lost control of Congress in 2006 and the White House in 2008, and the party reacted by becoming more skeptical of government action and entitlement programs. By the time Republicans regained the House in 2010, they were focusing more on the issue of people who don't pay income tax and proposing to curb spending on Medicare and Medicaid.
Romney's comments echoed statements by other Republicans including Sen. Orrin Hatch of Utah, about the increase in the number of people who don't pay income taxes. Hatch has maintained since last year that it would be easier to restrain federal spending if everyone paid at least some income taxes and had more of a stake in the tax system.
At the private fundraiser in May, Romney used the 47 percent number – a tax figure taken from an earlier year – to describe the Americans most likely to support President Barack Obama. A video of the speech was obtained by Mother Jones magazine.
Non-payers aren't the same people each year, Williams said. Households that don't pay income taxes one year because of job loss, for example, may pay again when they find work. People come onto the tax rolls as they leave school, pay more as they earn more, pay less as they have children and move off the tax rolls as they age and stop working.
Romney's tax proposals wouldn't necessarily require more people to pay income taxes. He has said he would prevent middle- income households from paying more taxes. That may mean that the share of people paying no income taxes would stay the same, though avoiding changes in progressivity may make it hard to meet his targets on rates and revenue.
Holtz-Eakin said Romney's plan would generate economic growth that would provide jobs for people, who would pay taxes.
Romney described non-payers as being dependent on government and feeling entitled to government-provided health care, housing and food assistance.
A total of 49 percent of Americans live in a household where someone receives at least one type of government benefit, the Census Bureau reported last year. Those benefits include payments to veterans and the disabled, along with food stamps, housing assistance and Social Security.
"Mr. Romney doesn't know what this country looks like, and he has no idea how government works," Richard Armitage, former deputy secretary of state in the administration of George W. Bush and a former top Defense Department official, said in an interview today. "The veterans who serve 20 years or more in the service, they get benefits – that's government money."
The federal government provides food stamps to 46.7 million people, or about 15 percent of the population. As of last year, 48.8 million people were enrolled in Medicare, the health program for the elderly that also covers some people with disabilities.
The percentage of households that don't pay income taxes remained at about 20 percent during the 1970s and 1980s before increasing in the 1990s, according to a report by the Tax Foundation, which favors a simpler, flatter tax system.
The report cites policies that were favored by lawmakers in both parties. The child tax credit of $500 per person, for example, was created in 1997 under a Republican Congress and during the administration of Democratic President Bill Clinton.
The tax cuts proposed by Bush in 2001 doubled the credit. Changes backed by Obama and congressional Democrats in 2009 made more of the tax credit refundable for low-income families.
"We're doing social policy through the tax system that results in this kind of outcome," Williams said, noting that if the government sent people benefit checks for each child, the economic effect would be the same and the tax data would be different.
According to the Tax Foundation, states with the highest concentrations of non-payers are Mississippi, Georgia, and Arkansas. The lowest concentrations are in Alaska, Massachusetts and Connecticut.
In a news conference last night, Romney stood by his remarks and said he could have phrased them better.
"My discussion about lowering taxes isn't as attractive to them, and therefore I'm not likely to draw them into my campaign, as effectively as those who are in the middle," he said.
With assistance from John McCormick in Chicago and Julie Hirschfeld Davis in Washington.