Who are the 47%?

We’re all makers and takers

By Ravi Agrawal, CNN

Editor’s note: Ravi Agrawal is a senior producer on Fareed Zakaria’s Global Public Square. The views expressed are his own. You can follow him on Twitter @RaviAgrawalCNN

It all began, as things so often do these days, with a leaked video. Then there was a hurriedly-arranged press conference, an ensuing media maelstrom, and finally, attack ads.

Mitt Romney’s revelation that his “job is not to worry” about the “47 percent of the people” who “pay no income tax” has divided America. On the one hand, the 47 percent of households who pay no income tax are enraged, belittled. “People want a hand up, not a hand out,” says President Barack Obama. But assuming Romney understood his audience at that fateful fundraiser, his comments suggest the 53 percent are angry too: weary of contributing what they think is more than a fair share, and worried that if their man loses they’ll have to pay more. As columnist David Brooks put it, it’s the makers versus the moochers.

I’ve been struck by how surprised people are that nearly half of Americans don’t pay income tax. Why so many, ask the 53 percent. What happened?

If only America looked at the rest of the world.

Consider India. If you’re a taxpayer, you’re part of the elite few. In fact, only 2.8 percent of the population officially makes more than the $3,700 threshold for paying taxes (per capita income is only a third of that amount.) The rest – the 97.2 percent – don’t file an income tax return.

Or consider communist China. How many of its 1.34 billion citizens pay income taxes? According to the state-run Xinhua newspaper, only 24 million made the cut this year. By my math, that’s 1.72 percent of the population; 98.28 percent of Chinese don’t pay taxes!

Between India and China, that’s a third of all humanity. And I could go on. The numbers for the U.S. and China and India aren't directly comparable – the U.S. number is for households, while the others are for individuals. But the fact remains that in much of the world – across Asia, Africa, and South America – it turns out that not paying income tax is not unusual; paying taxes is unusual.

The American 53 percent should be happy there are so many shoulders to carry the load.

The fact is that Romney’s comments suggest a number of misconceptions that are stoking resentment and contributing to the creation of a class fault-line across America.

First, are federal services used exclusively by the people who don’t pay income taxes? A fascinating article in the New York Times shows why that’s not true. It points to a Cornell University survey that asked Americans whether they had taken advantage of federal government programs like student loans or Medicare (it doesn’t take into account government programs that impact everyone, like the police or the highway system). Ninety-six percent admitted to seeking federal assistance. Young adults not eligible for many of these services accounted for the other 4 percent.

In some form or the other, we are all takers; every single one of us. It’s not just government programs; look at subsidies. In the U.S. for example, a gallon of gasoline costs nearly $4. But you would pay twice as much in most of Europe. Even the Indians and Chinese pay more. Doesn’t everyone benefit from subsidies?
In an excellent essay for TIME, meanwhile, Michael Grunwald – a tax payer – outlines how every single thing his family uses would cost more were it not for subsidies: water, electricity, food, even public radio.
Second, let’s flip this around. Just as we are all takers, we are all makers too. Everyone – rich and poor – contributes. There are payroll taxes, property taxes, Social Security and Medicaid taxes. The Washington Post’s Ezra Klein points out that even the poorest fifth of Americans pay on average about 17.4 percent of their incomes on these taxes. A majority of Americans end up paying 25 to 30 percent of their income – more than Mitt Romney likely does, as Klein points out.

The shared burden holds true for other parts of the world, too – places far more unequal than America.
We tend to think of income tax as a burden. Perhaps we should see it as a privilege, a luxury to have an income level that makes us eligible to pay it. Look around the world and you’ll see that income tax payers are part of an elite club. More people want into this club than out. Perhaps that’s what fuels resentment on both sides. In creating arbitrary numbers that divide those who pay taxes and those who don’t, we rank people. And yet, everyone makes, everyone takes. Perhaps the system just needs a gentler touch: an all-encompassing income-tax curve. But try getting that through Congress…