Do Taxpayers Make Better Citizens? Rick Scott Thinks So

Last week Sen. Rick Scott, R-Fla., released an 11-point plan to “Rescue America” that featured at least one provocative tax proposal. “All Americans should pay some income tax to have skin in the game, even if a small amount,” Scott declared. “Currently over half of Americans pay no income tax.”

At least one of Scott’s GOP colleagues in the Senate might have winced at that suggestion. Ten years ago, Mitt Romney made his famous, disdainful remarks about the nonpaying “47%” — and it did not go well for him.

Scott, who heads the Senate GOP campaign committee, is definitely taking a risk with his “skin in the game” argument. After all, it implies a tax hike for an awful lot of people — 100 million by some reckonings. And there are probably better ways to win a Senate majority than heaping scorn on half the nation.

But Scott’s basic point — that more people should pay income taxes — is hardly new: It’s been kicking around policy circles for a century. And while the argument didn’t work for Romney, it has served other politicians reasonably well, including Franklin D. Roosevelt.

Risky Business

Political observers responded to Scott’s tax proposal with memories of the Romney gaffe.

“Scott is pushing the [Republican] party back into Romney-Ryan-era ‘47%’ territory, offering Democrats an attack line that will both unite their party and be popular with marginal voters — something Democrats desperately need right now,” wrote Josh Barro for Very Serious.

“The political ads almost write themselves,” suggested Aaron Blake for The Washington Post. “The leader of the effort to elect a Senate majority wants to use that to raise taxes on as much as half of the country, however modestly.”

These dire predictions hinge on Scott’s prominence within the GOP leadership. Since Scott is chair of the National Republican Senatorial Committee, his statement has the aura of a quasi-official platform, despite his insistence that it’s simply a personal statement.

Democrats have certainly been happy to treat the plan as GOP dogma. “@SenRickScott and Senate Republicans just released an economic plan that doesn’t include a single proposal to lower prices for the middle class,” tweeted White House press secretary Jen Psaki. “Instead he wants to raise taxes on half of Americans — including on seniors and working families. Seriously, that’s their plan.”

That’s exactly the sort of snarky attack that Senate Minority Leader Mitch McConnell, R-Ky., has been hoping to avoid during this election year. McConnell has signaled his intention to run against the Democrats rather than for any set of specific proposals. Why give Democrats a set of easy targets?

Indeed, when asked in January about his likely agenda should Republicans win back the Senate, McConnell simply declined to answer: “I’ll let you know when we take it back.”

Apparently, Scott has a different view of electoral strategy.

Scott’s Number

When it comes to Scott’s basic assertion — that half of Americans aren’t paying income taxes — he’s not exactly wrong (at least for the time being). But he’s telling a partial and misleading story.

In 2020, 61% of American households paid no income tax, according to the Urban-Brookings Tax Policy Center. That number is expected to fall for 2021, but only to 57%.

Both those numbers have been inflated by the pandemic. “Last year, the share of non-payers increased by roughly 40% from the pre-pandemic year of 2019, due to a combination of a poor economy and multiple rounds of tax-based assistance to hard-pressed households,” explained Howard Gleckman on TaxVox. “The number of households who paid no income tax last year truly was eye-popping. But keep in mind: It was only temporary.”

Indeed, the number of nonpayers will continue to fall after 2021, according to Tax Policy Center estimates. By 2026 the percentage of households with no income tax liability should be around 40%, and by 2031, just 37.5%.

Reasonable people can disagree on whether that number is still too high. But it’s certainly a long way from 61 percent and notably less than Scott’s “half.”

There are still more reasons why the nonpayer number is misleading, and they have been rehearsed by commentators in past years: Many Americans who don’t pay income taxes in any single year do pay them in other years; many who don’t pay income taxes do pay other federal taxes, especially payroll taxes; many of the reasons that people don’t pay income taxes (refundable credits, for instance) come from deliberate and defensible policy decisions.

Fiscal Citizenship

All that being said, it’s still reasonable to be concerned about the number of nonpayers. Consider the “fiscal citizenship” arguments advanced by Duke University law professor Lawrence Zelenak in Tax Notes last year. 

Zelenak argued that “there is something to the notion of a mass return-based income tax as a promoter of fiscal citizenship.” The act of taxpaying — or perhaps simply return filing — connects people to their state and polity in important ways. When we remove people from that fiscal process, even for good reasons, we lose something valuable.

Many people share Zelenak’s view, although more than a few are dead. Arguments for broad-based income taxation as an element of fiscal citizenship are not absent nowadays, but they had their heyday during the first half of the 20th century.

Let’s revisit a few choice nuggets:

• Treasury Secretary Andrew Mellon in his annual report to Congress for fiscal 1925: “As a matter of policy it is advisable to have every citizen with a stake in his country. Nothing brings home to a man the feeling that he personally has an interest in seeing that government revenues are not squandered, but intelligently expended, as the fact that he contributes individually a direct tax, no matter how small, to his government.”
• Tennessee Democratic Rep. Cordell Hull, often called the “father” of the modern income tax, stating in 1926: “A tax system vitally important as is the income tax should apply to a respectable number of persons.”
• Treasury Department official study in 1934, commissioned to shape New Deal tax policy: “With respect to a lowering of the exemptions, it should be noted that this action would have the advantage, from our point of view, of increasing the number of direct taxpayers and thereby the number of persons having a conscious interest in government.”
• Roosevelt explanation to reporters in 1939 when asked about lowering income tax exemptions: “I think we have got to broaden the base a little bit. It won’t bring in much revenue but it does give added responsibility of citizenship.”
• Roosevelt again, this time in a 1941 letter to congressional Democratic leaders: “I am convinced that the overwhelming majority of our citizens want to contribute something directly to our defense and that most of them would rather do it with their eyes open than do it through a general sales tax or through a multiplication of what we have known as ‘nuisance taxes.’ . . . In other words, most Americans who are in the lowest income brackets are willing and proud to chip in directly even if their individual contributions are very small in terms of dollars.”

Fading Tradition

The political commitment to broad-based income taxation as a central pillar of fiscal citizenship was never universal, even during those long-ago days before World War II. Many Democrats favored a narrow income tax that targeted the wealthy and spared the poor. In fact, Roosevelt vigorously defended that view of the levy — until he didn’t.

But the notion of fiscal citizenship was a touchstone for politicians and fiscal experts of that era, although they usually framed it in terms of “tax consciousness.”

Broadly speaking, the fiscal policy community simply believed that the nation was well served when its citizens were engaged with issues of public finance — when they had, in Treasury’s 1934 words, “a conscious interest in government.” While various taxes might advance that sort of conscious interest, a return-based income tax was especially suited to the task.

Politicians didn’t seem to pay a price for this view, either before World War II or afterward. Indeed, Zelenak’s historical work features myriad examples from popular culture of Americans embracing the taxpaying ideal, viewing it as a badge of citizenship.

Personally, I’ve always been skeptical about the prevalence of this tax enthusiasm; paying taxes has always been unpleasant and fundamentally unpopular. No one likes to be parted from their money.

But there is something to it nonetheless: Americans did seem to view taxpaying as part of the social compact. It wasn’t something to celebrate, exactly. But it was a shared sacrifice to be acknowledged with (perhaps grim) pride.

After World War II, the political commitment to a mass-based income tax didn’t disappear. Indeed, it was baked into the postwar fiscal consensus, and while not unchallenged, this consensus proved solid.

But the vocal commitment to tax consciousness, and the more general ideals of fiscal citizenship, began to erode. And by the time Romney was trying to capitalize on this ancient tradition, it had been cast in mostly negative terms.

Gone were Roosevelt-style claims about Americans being “willing and proud to chip in” (claims that were certainly shaped by the unusual circumstances of a looming war). In their place was a negative rhetoric, replete with slackers and freeloaders, people (in Romney’s words) “who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it.”

That sort of rhetoric is a tough sell when it’s directed at nearly half the population. If you’re asking 100 million people to pay more in taxes, while also asking them to vote for you, then it’s probably best to avoid insulting them at the same time. The rhetoric of fiscal citizenship works best as a call to shared purpose, not an accusation of moral failure.

Of course, Romney’s mistake may not be Scott’s mistake; presidential candidates need broad coalitions, even given the vagaries of the Electoral College. But polarization has made Senate campaigns a different sort of contest. Maybe it’s possible to win a majority while alienating half the country — indeed, maybe that’s the golden ticket to victory.

But McConnell doesn’t seem to think so.

Scott May Have a Point

In any case, Scott is being disingenuous with his tax plan. As noted above, the nonpayer phenomenon isn’t some sort of tragic mistake crying out for repair; it’s the predictable result of deliberate policy decisions, many supported by Republican lawmakers and presidents.

Still, it’s not unreasonable to worry about the nonpayer phenomenon — to think that America might be better off with more people filing tax returns and more people actually paying something.

It’s not impossible, moreover, to reconcile that assertion with a belief that many households should receive net transfers from the federal government every year.

In his Tax Notes article, Zelenak lays out a variety of solutions to this apparent conundrum, including several that rely on relabeling specific payments to exclude them from the income tax system. That may seem like cosmetic tinkering, but it’s really something more.

“The idea would not be to pull the wool over the public’s eyes,” Zelenak wrote. “Rather, the idea would be that symbolism matters for its own sake, independent of substance, and that changing the labels would change the symbolism.”

Zelenak is right: Symbolism matters. These sorts of solutions should be taken seriously, as they were back in the heyday of tax consciousness.

Faced with similar problems in the 1930s, policymakers considered various cosmetic measures designed to ensure broad participation in the income tax system. This included the use of nominal “filing fees” for taxpayers too poor to actually owe real taxes. No one believed these fees to be meaningful revenue devices.

But they believed them to be meaningful as elements of fiscal citizenship.