Why Do People Pay No Federal Income Tax?
Much has been made of TPC’s estimate that fully 46 percent of Americans will pay no federal individual income tax this year. Commentators have often misinterpreted that percentage as indicating that nearly half of Americans pay no taxes. In fact, however, many of those who don’t pay income tax do pay other taxes—federal payroll and excise taxes as well as state and local income, sales, and property taxes.
The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TPC paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.
What about the rest of the untaxed households, the 23 percent of households who don’t pay income tax because of particular tax breaks? We divided tax expenditures (special provisions in the tax code that benefit particular taxpayers or activities) into eight categories and asked which ones made the most people nontaxable. 
The conclusion: Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children (see graph). Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.
Those provisions matter most for households with income under $50,000, who make up nearly 90 percent of those made nontaxable by tax expenditures. Higher-income households pay no tax because of other provisions. Itemized deductions and credits for children and education are a bigger factor for households with income between $50,000 and $100,000. The relatively few nontaxable households with income over $100,000 benefit most from above-the-line and itemized deductions and reduced tax rates on capital gains and dividends.
Policymakers can argue about whether specific tax expenditures serve their intended purposes, whether restructuring them might improve them, and even whether we should have them at all. But they cannot argue that pruning them back or eliminating them all would result in every American paying income tax.
It’s also important to recognize that while tax expenditures push many people off the income tax rolls, they provide much larger benefits to higher-income households than to others, measured both in dollar value and as a share of income (see these TPC studies). Rather than focusing on how relatively modest tax breaks make many of the elderly and low-income workers with children nontaxable, we should keep in mind that high-income households pay a lot less tax than they would without tax expenditures.
[...] TPC released a new study that examines why nearly half of Americans pay no federal income taxes: The number one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: [...]
[...] one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: A couple with two children earning less than $26,400 will pay no federal income tax this [...]
[...] of provisions that benefit senior citizens and low-income working families with children." http://taxvox.taxpolicycenter.or…The wealth of the top 0.1% is derived from common assets. Transportation, communication networks, [...]
[...] Michele Bachmann points out that 47 percent of Americans pay no federal income taxes. She is unusual among the candidates in using such specific numbers, and once again, the number [...]
[...] Michele Bachmann points out that 47 percent of Americans compensate no federal income taxes. She is surprising among a possibilities in regulating such specific numbers, and once again, a [...]
[...] Michele Bachmann points out that 47 percent of Americans compensate no federal income taxes. She is surprising among a possibilities in regulating such specific numbers, and once again, a [...]
[...] Rampell Who Pays Federal TaxesMrs. Bachmann points out that 47 percent of Americans pay no federal income taxes. She is unusual among the candidates in using such specific numbers, and once again, the number [...]
[...] of American households paid no income tax whatsoever during 2009. While this is correct if you analyze the facts it is easy to see why. While they may not pay a tax bill at the end of each year, everyone pays sales tax, payroll [...]
I understand why people would be upset when seeing a simple statistic like this, but one needs to look at the reasoning behind it.
Simple fact: Most people paying federal taxes have filed multiple returns where they owed nothing in the past (16 yr old with 2k income)
Simple fact: Most people paying federal taxes will file multiple returns where they owe nothing in the future (seniors on social security, etc)
I understand people can be upset that the couple earning 26k pays nothing on the federal level, but those earning 50k pay near 8-10%. If we have a flat tax it would have to be above 20% to match current tax intake levels. And we have massive deficits. If you want a 10% flat tax, considering the massive debt the country has you’d have to cut the federal government to presumably 10% of its current budget. Not going to happen – would literally bankrupt the USA.
[...] owing any income tax is because of deliberate decisions we’ve made to let them off the hook. People who don’t pay income tax are either (a) poor or (b) have deductions that cancel out their t…, particularly tax credits for the elderly, children and the working poor. We can put them back on [...]
[...] just the 1% that pay less in income tax than the basic tax rates suggest: nearly half of Americans pay no federal income tax at all. (Hence the “We Are the 53%” counter-movement.) These people could conceivably be called [...]
[...] According to the Urban Institute and Brookings Institution’s Tax Policy Center, 46 percent of Americans will not pay federal income taxes for 2011. About half of those people, their report says, are exempt because their incomes are too low. The other half tend to be exempt due to provisions benefiting senior citizens and low-income working families with children. [...]
[...] families, government welfare recipients, and students, the Tax Policy Center’s Roberton Williams explains. “Many of those who don’t pay income tax do pay other taxes — federal payroll and excise [...]
[...] According to the Urban Institute and Brookings Institution’s Tax Policy Center, 46 percent of Americans will not pay federal income taxes for 2011. About half of those people, their report says, are exempt because their incomes are too low. The other half tend to be exempt due to provisions benefiting senior citizens and low-income working families with children. [...]
[...] 46 procent die geen belastingen betaalt, heeft of een te hoog inkomen óf fiscale vrijstellingen gekregen. Inkomensbelasting betalen, dat zouden meer mensen moeten doen volgens de “53 [...]
[...] was eager to downplay the 53 percent statistic on their blog, explaining, “Commentators have often misinterpreted that percentage as indicating that nearly [...]
[...] income taxes? For the answer to that question, we turn to the nonpartisan Tax Policy Center, which released a study on the subject this July. (The TPC also put out the initial report with the 53 percent [...]
[...] make much of the Tax Policy Center report last July that noted 46 percent of Americans do not pay federal income taxes. (It is false [...]
[...] income taxes? For the answer to that question, we turn to the nonpartisan Tax Policy Center, which released a study on the subject this July. (The TPC also put out the initial report with the 53 percent [...]
[...] 46 procent die geen belastingen betaalt, heeft of een te hoog inkomen óf fiscale vrijstellingen gekregen. Inkomensbelasting betalen, dat zouden meer mensen moeten doen volgens de “53 [...]
[...] Movement conservatism (as well as the Tea Party, if you care to differentiate between the two) is, at its core, still a grievance industry. They don’t believe that all Americans pay too much in taxes – in fact, it is a common conservative complaint that many Americans pay no federal income taxes, though they still pay federal payroll and excise taxes as well as state and local income, sales, and property taxes. [...]
[...] According to the Urban Institute and Brookings Institution’s Tax Policy Center, 46 percent of Americans will not pay federal income taxes for 2011. About half of those people, their report says, are exempt because their incomes are too low. The other half tend to be exempt due to provisions benefiting senior citizens and low-income working families with children. [...]
[...] According to the Urban Institute and Brookings Institution’s Tax Policy Center, 46 percent of Americans will not pay federal income taxes for 2011. About half of those people, their report says, are exempt because their incomes are too low. The other half tend to be exempt due to provisions benefiting senior citizens and low-income working families with children. [...]
[...] government welfare recipients, and students, the Tax Policy Center’s Roberton Williams explains. “Many of those who don’t pay income tax do pay other taxes — federal payroll and [...]
[...] families, government welfare recipients, and students, the Tax Policy Center’s Roberton Williams explains. “Many of those who don’t pay income tax do pay other taxes — federal payroll and excise [...]
[...] it’s not just low-income workers, because over 20% of these Mooch-Americans are elderly people enjoying tax-free Social Security benefits, [...]
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[...] $11,600 standard deduction and two exemptions of $3,700 each reduce their taxable income to zero. As Bob Williamson puts it, "The basic structure of the income tax simply exempts subsistence levels of income from [...]
[...] for the elderly, exemptions for parents and the poor, and other various tax credits — transfer the same amount or more money than the households pay in [...]
[...] the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] Marcus puts it this way: As the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] $11,600 standard deduction and two exemptions of $3,700 each reduce their taxable income to zero. As Bob Williamson puts it, “The basic structure of the income tax simply exempts subsistence levels of income from [...]
[...] personal exemptions in the tax code. A couple with two children earning less than $26,400 a year, for example, will receive an $11,600 standard deduction, as well as four exemptions of $3,700. Together, these [...]
[...] returns, representing 91 million individuals, will face a zero or negative tax liability.” The Urban-Brookings Tax Policy Center publishes the enclosed chart and states that “much has been made of TPC’s estimate that fully [...]
[...] the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year [...]
How about a flat tax on everyone regardless of the source of the income. Let’s use 10%. No deductions for anything. If you work at a job and make $1.00 a year, you owe .10. Send it in. If you’re a corporation and make $8. Billion (like GE) you owe $800. million send it in. If your income is dividends, interest or capital gains same thing 10%. We would eliminate, tax atty’s, accountants and reduce the size of the IRS. And,this way everyone has skin in the game. jd
This needs to be challenged differently. Why are those that don’t pay federal income taxes are bullied? Everyone has income that is not taxed. Everyone has 1 exemption for each person in their household regardless of income. Everyone has a minimum of a standard deduction based on their filing status. Both reduce the amount of income that is taxed. Those that are lucky enough to itemize their deductions have more income that is excluded from taxes.
Those with AGI of $200k or more have on average $64k or more of itemized deductions. That is $64k of income that is not taxed.
[...] representing 91 million individuals, will face a zero or negative tax liability.” The Urban-Brookings Tax Policy Center publishes the enclosed chart and states that “much has been made of TPC’s estimate that [...]
[...] returns, representing 91 million individuals, will face a zero or negative tax liability.” The Urban-Brookings Tax Policy Center publishes the enclosed chart and states that “much has been made of TPC’s estimate that fully [...]
[...] returns, representing 91 million individuals, will face a zero or negative tax liability.” The Urban-Brookings Tax Policy Center publishes the enclosed chart and states that “much has been made of TPC’s estimate that fully [...]
[...] you’re not going to pay any income tax. Roberton Williams, one of the report’s authors, gives the example of “a couple with two children earning less than $26,400. They get an $11,600 standard deduction [...]
[...] that the reason why many American households have no federal income tax liability is because they have such low [...]
[...] in increasing financial aid for college students).Move some (according to certain criteria) of 46% of American population, who pay no Federal income tax, into the ranks of the remaining 54%.Impose a national sales/VAT [...]
It is true that many people do not pay into the Federal Government by virtue of taxation. But, these people also perform a vital function to the U.S. economic infrastructure by working at low-incomes. This permits higher-income people to make the added money they so covet. I, in no way, feel that lower-income people somehow are ‘getting-away’ with a free-ride. They are the labor force that provides the incomes that provide the taxes that benefit all of us economically.
Facts are facts. One half of the US population is paying for the operations of the United States government and another half is not. They may be paying for some aspect of state and local government. They may be paying into Social Security and Medicare, programs that disproportionately benefit lower income workers. However, it is increasingly untenable that a smaller and smaller number of people are bearing the entire load of the US government.
There is no simple explanation for this. It results from a mish mash of policies, including the child tax credit, so beloved by social conservatives, the EITC, which was favored by Milton Friedman and other economic conservatives, and liberals who believe that the tax rate structure should not only be progressive but insanely so.
We should stop being so defensive about this statistic. It is what it is. It’s not a sign of a health tax code. And there’s plenty of blame to go around.
[...] some (according to certain criteria) of 46% of American population, who pay no Federal income tax, into the ranks of the remaining [...]
Most discussion of tax expenditures implicitly assume that the tax rate is exogenous and the deduction was added an afterthought. This is false. The tax rates were set long after these mass-market deductions existed. If the deductions had not existed, today’s tax rates would be lower. Tax expenditures are not a pot of free money as some would like to believe.
For a complete discussion of the deficiencies of mainstream treatment of tax expenditures, see
taxprof dot typepad dot com slash files slash 132tn0255 dot pdf
(spelled out this way because actual links require manual approval but the approver must have been laid off)
I promise that you will be glad you took the time to read it.
This is true – however the agreement behind the 2001 and 2003 rates and benefits has evaporated.
[...] The number one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: [...]
[...] precise reasons. Number one among them is pretty obvious, it’s because they have low incomes. Bob Williams notes: A couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] number one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: A couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: A couple with two children earning less than $26,400 will pay no federal income tax this year [...]
[...] points us to this post by Bob Williams at the Tax Policy Center for an explanation: [A]bout half of people who don’t owe [...]
[...] one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes: A couple with two children earning less than $26,400 will pay no federal income tax this year [...]
Most discussion of tax expenditures implicitly assume that the tax rate is exogenous and the deduction was added an afterthought. This is false. The tax rates were set long after these mass-market deductions existed. If the deductions had not existed, today’s tax rates would be lower. Tax expenditures are not a pot of free money as some would like to believe.
For a complete discussion of the deficiencies of mainstream treatment of tax expenditures, see
http://taxprof.typepad.com/files/132tn0255.pdf
I promise that you will be glad you took the time to read it.
Highlighting the tax benefits mainly benefiting the wealthy would be helpful. I suspect the biggest is mortgage interest, which should be ended and replaced by a larger child tax credit (which should be consolidated with other low income credits as well). I would then move the tax credit to a VAT-like Net Business Receipts Tax, which would in effect raise wages for families with children and lower wages for families without them. Doing this is the best way to end the aging crisis facing entitlements for seniors.