About those 46% of Americans who pay no federal income taxes

Some GOP presidential contenders have suggested that the very highest earners in the United States pay too much in taxes and the low earners pay too little. Three broad points here:

(1)   The GOP position ignores every tax other than the Federal Income Tax. In particular, it ignores the Federal payroll tax that finances Social Security. Every employed American pays this tax, which applies only to the first $106,800 of income. So even a CEO who earns millions each year has precisely the same Social Security tax bill as someone earning $106,800. The GOP position also ignores state and local taxes like property taxes and sales taxes, which also hit lower income people the hardest. When all taxes at all levels are taken into account, it turns out that the total tax burden is barely “progressive” at all. Here’s the bar graph from the report prepared by Citizens for Tax Justice. It demonstrates that in 2010, the shares of all taxes paid by each income group in society were similar to their shares of total income:

(2)   The overwhelming majority of the 46% of Americans who will owe no Federal Income Tax in 2011 (but will nevertheless pay many other taxes) are in or near poverty. The 46% break down as follows.

  • Half of this group (23% of potential taxpayers) pay nothing because they’re poor, and the basic structure of the income tax simply exempts subsistence levels of income.
  • Just under one-quarter of the nonpayers (or 10% of potential taxpayers) are elderly and will pay nothing because their Social Security benefits are exempt from federal income taxes.
  • About one-sixth of nonpayers (7% of potential taxpayers) will pay nothing thanks to provisions in the tax code designed to benefit low-income families raising children: the earned income tax credit, the child credit, and the childcare credit account.
  • The remainder — about 6% of potential taxpayers — pay no federal income tax for a variety of reasons, including such reasons as extraordinary medical expenses, catastrophic loss, or special deductions or credits. (Details in this report from the Tax Policy Center.)

(3)  It is very likely that some taxpayers in the 6% group are avoiding tax based on deductions that it makes no sense to keep. But when President Obama proposed eliminating or streamlining such tax loopholes during the debt ceiling negotiations of August 2011, most of the Republican legislators refused to eliminate them, saying it would be a “tax increase” to do so.

While adjustments to the tax code certainly are needed, the claim that the poor pay too little in taxes and that society’s most fortunate pay too much does not hold up.


About Guy N. Texas

Guy N. Texas is the pen name of a lawyer living in Dallas, who is now a liberal. He was once conservative, but this word has so morphed in meaning that he can no longer call himself that in good conscience. Guy has no political aspirations. He speaks only for himself.
This entry was posted in Economics, Government social programs, Income inequality, News. Bookmark the permalink.

2 Responses to About those 46% of Americans who pay no federal income taxes

  1. hortonw says:

    You’re right that the Social Security tax is capped, but the Medicare tax is not capped. But, it’s only 1.45% (for the employee’s half of the tax), so it’s not much of a burden on the wages above $106k. Both taxes are regressive in the sense that they only apply to wage income and not to investment income.

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