Double Lucky Duckies

Today's Star Tribune op-ed by former reporter Mike Meyers reminded me of Ed Lotterman's recent column that's been sitting on my desk, waiting for me to write about it.

Both articles are about the Right's reviled "Lucky Duckies" -- people who don't pay federal income tax. (The term has been used by both Fox News and the Wall Street Journal.)

Meyers' piece, Soak the Poor, pointed out that the duckies pay plenty of taxes (payroll, state, sales), and that it was radical lefties like Gerald Ford, Ronald Reagan and George W. Bush who signed into law the tax code changes that created the situation.

The Earned Income Tax Credit, passed on Ford's watch, aims to promote what once was a Republican ideal -- rewarding work. The idea is to encourage people to leave welfare for jobs. If the work pays too little to support a family, the credit aims to help fill the hole in the household budget.

Reagan trumpeted how millions of additional working poor left the tax rolls with the reforms he pushed through Congress in 1986. For once in his life, Reagan was right.

He also makes the point that the wealthy benefit more from government than the poor, albeit in indirect ways that may be hard for them to grasp:

After all, the most prosperous obtain more than most people from a federal government that enforces copyrights and patents, maintains courts that officiate over property-rights disputes and (when the government does its job right) regulates markets to ensure their fairness.

One reason Bill Gates became a billionaire was that the FBI dragged off Windows bootleggers in chains. Great fortunes grow with government cooperation.

Lotterman reminds us that most of those who don't pay federal income tax in a given year either have paid in for years already or are too young to be making enough to reach the taxation threshold:

...a high proportion of nonpayers simply have incomes less than the threshold levels at which any tax is due. These are largely people 25 and under or 65 and older. Virtually all of them either will pay income tax for many years later in life or already have done so for decades. The idea that because they are temporarily in a low-income phase of their lives they will take a cavalier attitude toward the nation's economic health stretches credulity.

He follows that with this: "...available data strongly indicate that well over 90 percent of all individuals spend most of their adult lives in households that pay federal income tax."

And finally, Lotterman's historical coup de grace:

...the federal income tax originally was designed to be paid by only a fraction of all households. When implemented in 1913, only 358,000 returns were filed out of more than 20 million households. In 1940, even as taxes were being ramped up for World War II, only 7.5 million returns owing tax were filed from 35 million households. Yet, there was little thought that these low payment rates somehow undermined the economy or the political system.

Yes, this was due almost entirely to high thresholds for taxable income rather than special credits for education, child care or low earned incomes. Even though the fiscal pressures of World War II dramatically increased taxes, the 1945 personal exemption of $600, when adjusted for inflation, would equal $7,467 today. That is more than twice the $3,700 allowed for 2011 returns. (emphasis added)

How do the flat taxers argue with the historical reality that income tax wasn't designed to be paid by everyone, but only by the better-off among us? They don't.

If the standard personal exemption had kept up with inflation, the Earned Income Tax Credit and other credits aimed at the working poor may not have been necessary. But that would have cost even more in revenue, since better-off Americans would also have been exempt from paying the difference.

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My earlier posts on the "lucky duckies":

Who Are the 1,400?

Is Your Grandma a Welfare Queen?