One of the biggest lies right wing extremists like to tell themselves is that poor people don't pay taxes. Instead they sponge off the noble and righteous people who do. Romney's famous 47% refers to American adults whose incomes are too low to owe federal income tax. The extremist part is taking that fact to mean 47% of Americans pay no taxes and use the federal government as a free ATM.
It's one of the right's oldest tropes, around for generations. Poor people are poor because they are lazy moochers and therefore deserve no help from the rest of us.
In addition to cutting off moochers, the right wants to reduce or eliminate taxes on businesses. If we take the tax burden off job creators, they'll use that money to create more jobs, thus more people will be employed, more people will pay taxes, fewer will need government benefits, and we'll all be able to pay a little less. How great would that be?
A lot in life depends on how you look at things. That's one way to look at things. Here's another.
Businesses don't pay taxes, they build them into the cost of doing business, as they should, and pass that expense along to their customers. That's what businesses do. That's how business works. If their customers are other businesses, they pass that tax along too until it is finally paid by us, you and me, everyone who buys goods and services. It's built into the cost of everything we buy.
I'm best qualified to tell you about one particularly excellent example of this, the federal excise tax on distilled spirits such as bourbon whiskey, aka the FET. This is not intended as a defense of taxes, the FET or any other, or of tax policy, either current or proposed. It is a defense of taxpayers.
All of them.
There is virtually no adult American who pays no taxes.
Included in the 47% of adult Americans who do not pay federal income tax are the poor, but also many low income working Americans, most retirees, most college students, and most veterans. Let's say you are one of those people and you like your Jim Beam Kentucky Straight Bourbon Whiskey. Here in the Chicago area, you will pay about $26 for a 1.75 L bottle of Jim, including the taxes that are added on at the register. Of that, about $4 is paid to the United States Treasury.
Congratulations, Jim Beam customer, you are a federal taxpayer.
That $4 isn't all of the taxes you pay, just the federal ones. State, local, and indirect taxes add another $10. In all, tax is about 54% of the retail cost of a typical bottle of distilled spirits. So of that $26, $14 is tax revenue, and $12 is split among the producer, distributor, and retailer. (As calculated by DISCUS, the distilled spirits industry trade association.)
Distillers and other businesses collect the taxes and remit them to the government, but they don't pay the taxes. You do, I do, whenever we purchase our favorite libation.
Because poor people spend all of their income, and spend most of it on taxed goods and services, they pay a higher percentage of their income in taxes than any other group. That's true whether or not they spend some of their money on alcohol, but if they do, they're paying even more tax. Alcoholic beverages are among the most heavily-taxed consumer products on the market.
The federal government first imposed the FET in 1791. It was the first federal tax on internal economic activity. All previous federal revenue came from taxes on international trade. Widely hated, it was the proximate cause of the Whiskey Rebellion, the first time the federal government used military force against American citizens.
In his 2006 book, The Whiskey Rebellion, William Hogeland argues convincingly that the FET was engineered by Alexander Hamilton, the Treasury Secretary, to favor large distillers over small ones, in order to make collecting the tax easier, and because Hamilton believed in general that a few big businesses were better for the economy than a lot of little ones. As the American polis began to form itself into two political parties, this became one of the major battle lines, and the FET became a useful symbol for Thomas Jefferson's Democratic Republicans against Hamilton's Federalists.
As president, Jefferson abolished the tax, so there was no FET between 1802 and 1814. We are currently celebrating the 200th anniversary of that tax-free period. Jefferson's successor, James Madison, reimposed it in 1814 but his successor, James Monroe, abolished it again. As a young man, Monroe had worked in a distillery and understood business better than his predecessors.
What followed was a long, 44-year period with no FET. In 1862 it was brought back to fund the Civil War, and we've had it ever since. In 1985, during the presidential administration of Ronald Reagan, it was increased to $13.50 per proof gallon, where it remains. A 'proof gallon' is one gallon of 100 proof spirits (50% alcohol by volume).
Although the FET hasn't gone up in 27 years, other taxes on alcohol have and as a 'vice,' alcohol is always a convenient target for politicians.
While producers collect and remit the FET, it only hurts their business inasmuch as higher prices affect sales. Would Jim Beam sell more 1.75 L bottles of bourbon if they cost us $12 instead of $26?
If alcohol taxes go up and so do prices, who suffers? I do, since it costs me more to get my drink on, but if I and all of my fellow moochers buy less alcohol, then it's mostly the people who make it and sell it to us who suffer, and most of them are members of the moocher class too. The bottling line at Jim Beam starts to cut hours and lay people off, so do my favorite bars and liquor stores.
When Reagan raised the FET in 1985, tax revenues declined because sales did. It took several years for tax revenues to return to pre-1985 levels.
So, in a democracy, we decide what we want to pay for as a community, then we figure out how to tax ourselves to pay for it. That's how it's supposed to work. It's hard to believe the hodge-podge of taxes and taxing authorities we have now is in any sense designed to be reasonable or fair. If it can even be said to have an overall purpose, it would be simply to maximize revenue.
How do we come up with a more rational way to run our country's finances? Not villainizing half of the tax-paying population might be a good place to start.