Mitt Romney is Just Not Ready to be President

For a candidate running for president on promises to reform taxes and entitlements, Mitt Romney provided evidence this week that he understands little about either taxes or federal transfer programs. Here is what he said: 47 percent of Americans are “dependent” on government transfers. They are the same 47 percent of Americans who pay no income taxes. And nothing he might do or say in his campaign will convince that 47 percent of the country to “take personal responsibility and care for their lives.”

To begin, those who do not pay federal income taxes — 46 percent last year, but in normal economic times, about 40 percent of the country — are not the same people who receive transfer payments. Generally speaking, about one-third of Americans who pay no income tax do not receive any transfer benefits. They are too young to collect Social Security or Medicare, and they are not poor enough to collect Medicaid or welfare. Then there is the flip side: About 40 percent of those who receive transfer payments also pay income taxes. Americans who collect Social Security and Medicare, the vast bulk of federal transfer payments, are distributed across the income distribution. In fact, the average household in the top 1 percent collected $9,000 in those transfer payments in 2009. And incidentally, that $9,000 was only a little less than the average transfer payment collected by those households smack in the middle of the income distribution.

Mr. Romney says these are people who won’t take personal responsibility for their own lives. Among those who receive transfer payments, 70 percent of their payments come from Social Security and Medicare. Those benefits, of course, are available only to working people who paid into the systems from the (via their ?) paychecks. Much of the rest goes to veterans and to students receiving federal loans and grants, also people hardly unwilling to “take personal responsibility and care for their lives.”

If we consider Mr. Romney’s view of personal responsibility from the other direction – those who pay no income taxes – we find that 61 percent of them work for a living, since they pay payroll taxes.  In fact, the payroll tax rate they pay, 15.3 percent, is higher than the 13.6 percent income tax rate that Mr. Romney paid last year on his $21 million income.  Another 22 percent of those who pay no income taxes are elderly people collecting Social Security and Medicare, again after working for it their whole lives.  The remaining 15 percent – equal to 7 percent of the country, not 47 percent — pay neither income nor payroll taxes, because they’re either disabled or desperately poor.

This juxtaposition of payroll and income taxes should alert Mr. Romney that looking at only one form of tax will tell you little about who and how we pay for government. In fact, everyone is a taxpayer when you consider all forms of tax — federal taxes on personal income, corporate income, estate and excise taxes, as well as state and local income, sales, property and excise taxes. Looking at all taxes, the top 1 percent pay out about 29 percent of their total income. That is only a little more than Americans in the very middle of the income distribution, who pay 25 percent of their total incomes in federal, state and local taxes. Even the poorest 20 percent of households pay about 17 percent of their meager incomes in all federal, state and local taxes. These tax burdens hardly describe the free-ride that Mr. Romney attributes to nearly half of Americans.

Although Mr. Romney seems unaware of it, the payroll tax has become the signature tax of American government. Last year, Americans paid about $300 billion more in payroll taxes ($1.4 trillion) than they did in income taxes ($1.1 trillion). In fact, the federal income tax today claims just 11 percent of all personal income. Moreover, among all Americans who work, 86 percent pay more in payroll taxes than in federal income tax. Even among the top 20 percent of households, 54 percent pay more payroll tax than income tax. In fact, 2.3 percent of people in the top 1 percent pay more in payroll taxes than income taxes. That means, of course, that those who pay little or no income tax include some of the country’s wealthiest people.

Most of this week’s commentary on Mr. Romney’s views of taxes, transfer payments and personal responsibility has focused on his political insensitivity. But his views reveal something much more important. He clearly has devoted considerable time and effort to understand how to minimize his own taxes. Yet, through his many years of preparing to run for president, he never bothered to understand the fundamental shape and distribution of American taxes and entitlements, and how they affect everyone’s lives. In a moment of candor that recalls, of all people, Sarah Palin, Mr. Romney has demonstrated he is not yet equipped or ready to be president.