Commentary

Romney’s Challenge

Now that we’ve all had time to calm down and step back a bit from Mitt Romney’s now infamous gaffe about the “47 percent,” its worth taking a closer look at what Romney actually said and the larger point that he was trying to make.

Romney, of course, was factually wrong in implying that the 47 percent of Americans who do not pay federal income taxes are some sort of poor underclass. He was perhaps more fundamentally wrong in implying that the poor, whether they pay taxes or not, see themselves as victims and are content to be dependent on government. And, it was just plain silly to say that non-federal taxpayers will uniformly vote for Obama.

While it is true that nine out of ten non-payers have incomes below $50,000 per year, the 47 percent includes both working poor and middle-class taxpayers with substantial deductions, and large numbers of retirees, who have paid federal taxes in the past, as well as students, who will do so in the future. Moreover, there is no evidence that most poor people wish to remain permanently dependent on government. Indeed, every survey of those on welfare, for instance, indicates that they would prefer to be working, and aspire to a better life for their children. And, some of the non-paying groups — seniors for example — are disproportionately likely to vote for Romney.

All in all, Romney’s statement was a model of inaccuracy combined with political tone-deafness.

Romney’s ‘47 percent’ line was inaccurate, tone deaf, and counterproductive.”

On the other hand, its not all that clear that President Obama sees things in a much different way. In 1998, as part of his “I favor redistribution” video, the president spoke of recipients of government benefits as a potential “majority coalition.” Today, his plan is basically “I will maintain or even expand what you get from government, but you won’t have to pay for it, just a few rich people will.” A president who cannot open his mouth without demonizing “the rich” who “don’t pay their fair share” can hardly pose as an opponent of classifying Americans.

More important, however, the contretemps obscured several important points that really should be discussed. First, both common sense and academic research suggest that it is easier to increase federal spending if fewer people have to pay for it. “Skin in the game” matters. For example, a study from the non-partisan Tax Foundation found that “A one percentage point increase in the share of tax filers who are non-payers is associated with a $10.6 billion per year increase in transfer payments.” Given that the percentage of non-payers has increased by 20 percentage points since 1990 to 47 percent today, the Tax Foundation concludes that this increase is at least partially responsible for $213 billion annually in additional spending.

It’s not just those who pay no taxes that may be inclined to support bigger government. According to a study by Greg Mankiw based on data from the Office of Management and Budget, roughly 60 percent of Americans receive more in government benefits than they pay in federal taxes. A Tax Foundation study suggests that, taking into account President Obama’s 2012 policies, as many as 70 percent of Americans are net recipients of government largesse.

At the same time, it should be clear that the more people depend on government programs, the harder it becomes to cut those programs. That is not to say that the people on those programs are freeloaders or refuse to take responsibility for their lives. But it does mean that they have a vested interest in maintaining those programs. There is a reason why it is so easy for politicians to demagogue Medicare reform, and why Social Security is the third rail of American politics.

Simply look to what is happening in European countries today. Despite the fact that their welfare states have become unaffordable, any attempt to trim benefits leads to massive resistance.

Have we reached that tipping point yet? No, but we may be getting perilously close.

Today, roughly 49 percent of Americans receive some kind of federal benefit. If one includes government employees and contractors, nearly a third of Americans, 97 million people, receive more than half of their income from the government. Aside from Sandra Fluke and some government union workers, these individuals do not generally see themselves as victims — nor are they lazy or irresponsible. But they are a constituency inclined to favor the status quo.

It does make Romney’s call for fiscal restraint and tax relief a bit harder to sell.

Of course, that does not mean that Romney cannot make his case. Nor does it mean that, as some big-government conservatives have suggested, we must simply come to terms with the modern welfare state. But it does mean that those who aspire to a smaller, less costly, less intrusive government must make the argument that cutting government will make people better off — even people receiving benefits from government today.

We know that, as Harvard’s Robert Barro wrote, “public consumption spending is systematically inversely related to economic growth,” and that there is a “significantly negative relation between the growth of real GDP and the growth of the government share of GDP.” In other words, as government spending goes up, economic growth goes down.

Most Americans, even those dependent on government today, want to see more economic growth, more jobs created, and a better future for their children and their grandchildren. Most would be willing to give up something today, if they saw it leading to a brighter future tomorrow. Romney’s challenge is to tie the need for lower taxes and smaller government — for cutting those benefits that people are receiving today — directly to a more prosperous nation.

Unfortunately, if Romney fails to make that case now, it’s not going to get any easier to make in the future.