By Bernie Becker - 05/03/11 05:59 PM EDT
In the end, the hearing appeared to again illustrate the divide between the two parties on taxes, especially over whether to further extend the current tax rates on household income above $250,000 a year. President Obama and other Democrats have repeatedly endorsed allowing income taxes to rise at the highest income levels, an idea that has been sharply criticized by Republicans.
Policymakers in both parties have also called for an overhaul of the tax code, but officials on both sides acknowledge that could be a drawn-out process.
For their part, Democrats at the hearing — including Sen. Max Baucus (D-Mont.), the committee's chairman — and some of the witnesses noted that many people who don’t have an income tax liability still pay in other ways, such as through payroll and sales taxes.
“Listening to the rhetoric used makes it sound like a significant portion of Americans are around, simply sitting, doing nothing, waiting for the taxman to bring riches,” said Sen. Robert Menendez (D-N.J.). “It seems to me that reality is far different.”
The new data cited by the GOP committee members came from the nonpartisan Joint Committee on Taxation, which forecasted that roughly 51 percent of taxpayers had zero federal income tax liability or had received a refundable credit in the 2009 tax year.
Sen. Orrin Hatch (R-Utah), the panel’s ranking member, also cited a 2008 study from the Organization for Economic Cooperation and Development that said that the U.S. had a more progressive tax system than other industrialized countries. (That study also said that income inequality had been rapidly increasing in the U.S.)
With all that data in mind, Republicans and some of the witnesses at the hearing called for every taxpayer to contribute at least something in income tax — to put some “skin in the game,” as some at the hearing put it.
“It’s an essential part of citizenship to be invested in this nation. And I think paying income taxes is one key to that,” said Scott Hodge, president of the Tax Foundation.
But Aviva Aron-Dine said that, as a practical matter, increasing the number of people who pay income taxes would mean lowering the personal exemption or the standard deduction — choices she said would raise taxes on senior citizens and make some people sitting below the poverty line pay income taxes.
“I think we want to think about the actual consequences that that would have,” said Aron-Dine, a former policy analyst at the left-leaning Center on Budget and Policy Priorities.
Aron-Dine added that she believed the number of people with no income tax liability would drop as the economy strengthened, and with temporary tax measures aimed at stimulating the economy having expired.