Conservative Principles Now

The Tax Foundation recently released its annual report on the number of tax returns filed that have no tax liability, and the study shows a record number of “nonpayers” in 2008. Taxpayers become “non-payers” when credits and deductions wipe out any income tax they owe.

According to the Tax Foundation report, of the more than 142 million returns filed in 2008, almost 52 million have no tax liability. That means more than 36 percent of tax filers paid no income taxes in 2008 – a new record high. This was a steep increase over 2007 when fewer than 33 percent of filers paid no taxes. As the table below shows, the growth of non-payers is a long-term trend that has been accelerating in recent years. For instance, 21 percent of taxpayers were non-payers in 1990.

The amount of income that a family can earn and still be non-payers is also alarming. In 2010, a family of four can earn up to $51,000 and still pay no income taxes.

Not only do a record number of taxpayer’s pay no taxes, but many of them actually receive cash payments through the tax code because of refundable credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit. According to the Tax Foundation, cash payments from these two credits alone totaled over $70 billion.

President Obama’s policies will add to the numbers of non-payers and the amount of income redistributed because he wants to expand and add even more refundable credits.

Like the Tax Foundation’s report, the Heritage Foundation’s Index of Dependence on Government shows a growing dependence on government and a substantial increase in recent years. According to the report, the average recipient of government aid received over $26,000 in assistance in 2008 – a record high.

The growing dependency on government and shrinking number of taxpayers is troubling and will lead to an even faster rise in unsustainable government spending unless the trend is reversed. Congress should start by ceasing the expansion of refundable tax credits. It should then reform entitlement programs like Social Security and Medicare before baby-boomers start collecting benefits from them and dependency on government explodes even further. If Congress starts soon perhaps it won’t be too late to stop the impending fiscal implosion.

Today marks the seventh year that we have published the Index of Dependence on Government. And, for seven years running, our Index shows growing dependence. The Index now stands at 240, up from a value of 19 in 1962, or a nearly 13 fold increase since the Kennedy administration. The rate of growth, however, actually has increased over the last eight years. That period saw the second highest rate of growth in dependency creating programs: since 2001, the Index has increased 31 percent. Most disturbing of all, all of the evidence points to even more rapid increases in dependency ahead, which well could threaten democratic government.

From virtually the first day of his presidency, Barack Obama and his top deputies have advanced programs and initiatives that deepen and expand American citizens’ dependency on government. From new federal programs designed to boost economic activity to health care reform that could place the U.S. government at the center of the nation’s health care system, the central thrust of policy since January 2009 has been to increase Americans’ daily dependency on Washington.

However, the rapid expansion of dependency-creating programs did not begin with Barack Obama’s inauguration. Indeed, President Obama inherited substantial momentum toward greater dependency on government from the George W. Bush Administration and prior governments. President Bush’s years saw growth in all dependency creating categories, but particularly in programs aimed at health, education, and working-age income support.

Even more disturbing is the confluence of growth in the index with increases in the percentage of taxpayers who pay no taxes and Congress’s control over spending. The percentage who pay no taxes jumped from 21.3 percent in 1980 to 34 percent in 2008. In 1980, 20 million tax filers paid nothing; in 2008, 48 million paid nothing. This number will growth dramatically next year when the Index counts for the first time taxpayers who took advantage of Obama era credits, such as Making Work Pay and the first-time homebuyers credits.

Combine these two indexes with the Steuerle-Roeper Fiscal Democracy Index, and you have a perfect storm for the future of our republican form of government. The Fiscal Democracy Index measures the percent of revenues not allocated by previous Congresses to mandatory spending. In short, it measure the control that Congress has over outlays. This Index nearly hit zero in 2009 and is forecasted to be steadily below zero in 10 years.

The steady growth of dependency creating program, particularly the so-called entitlement programs, and the equally steady shrinking number of taxpayers who have any financial stake in the government threaten rapid growth in mandatory, dependency programs and our very democracy. Are Americans closing in on a tipping point that endangers the workings of their form of government? If citizens can vote ever greater outlays for their income, health, housing, education, and food support; will the growth of government overwhelm the delicate political balances between those citizens who provide the means for helping other citizens in need?