Mitt Romney has distanced himself from his remarks lamenting the nearly 47 percent of Americans who do not owe federal income taxes, but his fellow Republicans helped engineer the very tax breaks that have put many in that category. And little change is expected soon.
A key reason: The breaks in question – the earned income tax credit and the child tax credit – are based on core Republican philosophies of encouraging work to lift people out of poverty, Republican aides and many conservatives say. The number of Americans not owing federal income taxes has been growing since the mid-1980s, and the increase largely stems from expansion of these two tax credits – championed by Republicans from conservative economist Milton Friedman to former President Ronald Reagan.
"It is absolutely true – there is some degree of disconnect between complaining about the 47 percent and yet supporting the policies that brought it about," said economist Alan Viard of the conservative-leaning American Enterprise Institute.
The income credit began under Republican President Gerald Ford and was significantly expanded by Reagan. The child credit doubled to $1,000 under Republican President George W. Bush. The two tax credit programs have long enjoyed bipartisan backing because they marry Democrats’ inclination to help the poor with Republicans’ emphasis on individual responsibility.
"The credits have been so sustainable because they meld together values that liberals and conservative emphasize," said Chuck Marr, director of tax policy at the liberal-leaning Center for Budget and Policy Priorities.
In secretly taped remarks, Republican presidential hopeful Romney was heard labeling the 47 percent not owing federal income taxes as people "who believe they are victims, who believe that government has a responsibility to care for them."
He has since distanced himself from those remarks, saying in Tuesday’s debate with President Barack Obama, "I want 100 percent of the American people to have a bright and prosperous future."
In his original comments, however, Romney was stating what many Republicans have been grumbling about for several years as the number of nonpayers crept up.
The 47 percent figure, from the nonpartisan Tax Policy Center, is largely made up of the elderly and working poor. Taxpayers can claim an EITC with income of up to about $44,000 if they have three or more children. With one child, the income limit is about $36,000. The 2011 credit ranges from about $500 to nearly $6,000 – with the highest credit going to those with three or more children. To qualify for the CTC, an individual must earn more than $3,000 in wage income and can claim a $1,000 credit per child.
WHAT DO REPUBLICANS WANT?
What Republicans would do to put more people on the tax rolls remains unclear. But Republican aides in Congress said they would probably not significantly scale back the credits. Instead of advocating the credits’ demise, one senior aide said, they are protesting the lagging wage growth during the last four years under Obama and the overall increase in the slice of the population receiving government payments.
Obama expanded the reach of the two tax credits as part of his economic stimulus aimed at revving up the economy. The expansion made it easier to qualify and minimized a penalty for marriage. Those changes are due to expire at the end of this year.
Republicans oppose renewing Obama’s changes when they expire.
"Further expansion may be where the dividing line seems to be," Viard said. Senior Republican congressional aides echoed this sentiment.
The extensions’ fate will be decided after the November 6 election and before December 31, when Congress faces a slew of decisions collectively known as the "fiscal cliff." It is unclear how Romney would address the credits. But Kevin Hassett, an AEI economist who advises Romney, has proposed combining several credit programs, not ending them.
An early version of a budget from Paul Ryan, the House Budget Committee chairman who is Romney’s running mate, proposes slashing all tax deductions – including these credits – in exchange for lower tax rates. Many bipartisan plans to tame the deficit and overhaul the tax code keep the credits.
The Simpson-Bowles plan includes an option to scrub the code of nearly all tax breaks but maintains both credits. Even the conservative Heritage Foundation backs the earned income tax credit and includes it in its tax revamp.
"The proper way to fix this problem isn’t to raise taxes on families and the poor," said Curtis DuBay, a Heritage economist, who called the EITC an effective anti-poverty program.
Joe Thorndike, a historian at the publication Tax Analysts, said the debate over how broad a population the income tax reaches was not a new one. He pointed to former Treasury Secretary Andrew Mellon in the 1920s backing the idea that every individual pay some income tax – no matter how small. Thorndike urged Democrats to embrace the idea that more taxpayers should be paying income tax. He said it could undermine support for income tax overall if too few people paid it.
"Americans care about this number, it means something to them," Thorndike said.