Associated Press | Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it’s simply somebody else’s problem.
About 47 percent will pay no federal income taxes at all for 2009.
Either their incomes were too low, or they qualified for enough
credits, deductions and exemptions to eliminate their liability. That’s
according to projections by the Tax Policy Center, a Washington
research organization.
Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it’s still almost always better to file: That’s the only way to get a refund of all the income taxes withheld by employers.
In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.
Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.
The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.
“We have 50 percent of people who are getting something for nothing,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.
The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.
That helps explain the country’s aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.
“It’s not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes,” Stretch said.
The federal income tax is the government’s largest source of revenue, raising more than $900 billion — or a little less than half of all government receipts — in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don’t pay it, mainly lower-income families.
The number of households that don’t pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.
In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.
In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.
Obama’s Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.
There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.
“All these things are ways the government says, if you do this, we’ll reduce your tax bill by some amount,” said Roberton Williams, a senior fellow at the Tax Policy Center.
The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.
Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it’s time to pay up. The nation’s wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.
But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.
Here’s how they did it, according to Deloitte Tax:
The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.
With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.
The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.
I think there is a consensus opinion among the American public (Tea Party-diehards notwithstanding) that those who are wealthier should pay more in taxes than those who are less wealthy. But isn’t it a bad thing for the state of our republic if half or more of Americans pay no income taxes whatsoever? Personally, I want to be among the class that pays taxes: It means I am being productive and generating wealth for myself and for those around me. But is it right for half the country to pay no taxes — and then be able to use their votes to make sure those that pay taxes pay more?
I can relate. Claiming zero deductions, the Fed’s witheld over $30K from us last year and even with a home and the deductions that go with it, we just cut the IRS a check for just under $5K. I paid my kid’s college tuition out of my own pocket. While I agree if you have to have a problem, I would rather have mine than the problem of no income, but I am tired of hearing about the well to do. Bring on a flat tax.
It’s been said that an election is just an auction of goods which have yet to be stolen.
Expecting those who pay no taxes to vote responsibly on raising taxes– especially if they expect to receive transfer payments funded by those taxes– defies human nature.
In short, every adult citizen should pay something toward the cost of government, even if it’s not very much. And every tax increse should increase everyone’s taxes– even if just by a little bit.
And, really, even those who hope to benefit from those golden eggs should realize that the egg supply will come to an end if you just keep sticking it to the goose that produces them.
When you think about it, a family of four making only $50,000 needs every penny they can get their hands on to survive. So, getting money at tax time is a good thing. Think of all the bills and housing costs. Food. Clothes. Etc. I know that it results in the government getting less money, but what can be done? On another note, it costs a lot of money to get those “home” energy efficient upgrades. So lower and middle income folks cannot afford to try for those tax credits. Oh, and I am also one of those who think higher income folks should not get tax breaks or should pay more taxes. Especially grossly overpaid executives (CEO’s etc).
When you think about it, a family of four making only $50,000 needs every penny they can get their hands on to survive. So, getting money at tax time is a good thing. Think of all the bills and housing costs. Food. Clothes. Etc. I know that it results in the government getting less money, but what can be done? On another note, it costs a lot of money to get those “home” energy efficient upgrades. So lower and middle income folks cannot afford to try for those tax credits. Oh, and I am also one of those who think higher income folks should not get tax breaks or should pay more taxes. Especially grossly overpaid executives (CEO’s etc).
About 47 percent will pay no federal income taxes at all for 2009…
Nice English, how do you pay nothing?
Oh and Taxes:
I’m sure you feel that you should be exempt because after all you don’t have time to work cause you are too busy eating potato ships on the couch watching Oprah. Which makes me think you are probably grossly over weight. (Lazy people, etc.)
Read post from “InnocentIII”…..read it again….read it once more….when you are sick of it, read it again…then internalize it, if you can….It’s a universal truth and a moral absolute….well done.
I would love to know what % of those NOT paying their fair share voted Democratic…
This does tend to explain those who say “raise someone else’s taxes.”
Ask Deloitte tax what the $50,000 family of four pays after the evil Bush tax cut expires next year. You will find that instead of $31 welfare check they will pay $300+. They can also look forward to higher property taxes, state and local tax and fee increases and higher inflation. This is before Obamacare, Tax and Crap, and VAT. I can only hope the $50,000 a year family of four is not a union worker- then they can expect higher dues and a pension that is underfunded. They can then thank the people that have been telling them how to vote all of these years.
I think that each person should get one vote for every tax dollar they pay. Pay $100 in taxes, get 100 votes. Pay $30,000 in taxes, get 30,000 votes.
So the burden of paying for Obama’s $12 trillion deficit falls on the other 53% of American households. Eventually, Obama is going to run out of “wealthy” people to tax. So Obama’s voters, watch out, he’s coming for your wallets…soon.
We all have strong opinions about different subjects, especially money. BUT, is it neccesary to personally attack someone in the way Ed did? Healthy debates are important and help us all clarify our beliefs and hear from different points of view. I wish we would focus more on trying to balance our governmental budget. I feel we should all be concerned about finding a way to do that.
If I had the money to afford a condo on Marco Island, a Cadillac, and a Hummer, I’d certainly never complain about paying higher taxes. I’d be in good shape and would feel proud to pay a little more than my share to help those less fortunate. Additionally, If I was of age and had plenty of money to retire, but was able to keep getting a paycheck while traveling to great vacation type cities on my company’s dime, I’d have no problems paying a little more to help those families that are struggling. It’s like this. Say you drove far for fried catfish and the portions were way too small for the amount of money that you spent. Wouldn’t you steal the hot sauce? Of course you would. That’s my point.
I agree with Tommy Koletta, one vote for every dollar paid in taxes. Stop the freeloaders from taking more tax dollars from all of us hard working, tax paying citizens. If people need help fine, but $50,000 in income? Come on!
Yes, 47% of filers pay no federal income tax, but as the article points out, they all pay or should pay a payroll tax to the federal goverment to fund Social Security and Medicare. A household income of $50,000 is not that much, especially when kids are a part of that household. It’s not like people with those incomes are getting with away something. I pay federal income tax, but I am not offended that so many people are effectively exempted from just one of many taxes that we all pay.
Interesting that Obama’s approval rating (48% according to Rasmussen) is very close to the percentage of households that do not pay federal income taxes.
I am not sure of the accuracy of these statistics. It’s like trying to compare the carbs in dirty rice versus those in deep fried onion rings. We’re all better off trying to taste test dark chocolate, than to debate the tax system.
I agree with tommyk (except about the hot sauce, prefer tartar myself). Having been at both spectrums of wealth I do not mind shoulder a higher burden then someone making much less. I would rather have that predicament then no money at all. That being said I think that the 50k is too much for 4 people. I would half the amount for no taxes. For those that are going to cry about the larger amount of taxes for wealthier people think about all the lovely tax loopholes the wealthy are able to take.
BTW, I really would do away with the 40% tax on bonuses up to a certain amount, say 50K. That has always irked me when I was a kid.
Fifty grand goes a long way for a family of four outside of Chicago, outside of Cook County, outside of Illinois. FIPs wake-up!!
You teabaggers better get back to work seeing as you pay all the taxes and have to support the lazy slops who choose to suck on the system. While you are at it, get a second job and leave the blogging to the folks with plenty of spare time.
To all the folks who think that those who make more money should pay more – NEWSFLASH: They already do!
35% of 100k is more than 35% of 75k.
If you have a real interest in this subject read about the Laffer curve:
http://en.wikipedia.org/wiki/Laffer_curve
Anyone with common sense, red or blue, can appreciate the diminishing returns of taxes that are too high or too low.
Taxing those who earn or have earned more is a disincentive to work and to invest. When that effect fully kicks in – look out!
A 17 year old, still in high school, has a kid and qualifies for all types of government (taxpayer) assistance. Fine. If that mother has another child out of wedlock, there should be no additional government handouts. Rent assistance, food stamps, free emergency room care (who’s paying for the delivery?) This person will likely never pay any taxes, yet consume a significant amount of resources.
So much for the allegations that the Bush tax cuts were not broadly based, with ALL Americans receiving significant benefits. Why it is so hard for so many to realize that the Kennedy, Reagan, and Bush income tax cuts worked to the enormous advantage of all income groups and triggered massive economic investment and expansion is not easily understood. However, at some point the ever-increasing trend to raise the already heavy tax bite on higher income groups (note the datum that in 2006 the top 10% of income earners paid almost 3/4 of total income tax receipts) is going to backfire, as the negative impact on incentives to invest and earn kicks in accordingly. The salutory lesson of the story about the goose that laid the golden eggs comes to mind.
We filed our 2009 tax return in Feb…and got back a hefty return of over $5000!! Now, we’re out house-hunting to grab the $8000 more that we can get!
Everybody who gets a benefit from federal programs should have skin in the game, or you don’t get to vote. So if you don’t pay federal income taxes, you don’t vote. Plain and simple, and it keeps the welfare dependents from being able to vote for the people who continue the programs whether they’re meaningful or not, whether they work or not. Thank you, Mr. and Mrs. Slob making $50K a year for reproducing and leaving me and a bare majority of Americans from paying your way. Quite frankly it makes me madder the more I think about it. Fair share indeed – the left doesn’t have a clue as to what fair share even means.
It is one thing to Not pay tax and another to GET paid for simply being an American.
Amazing that this system of welfare never ends.
Everyone should be paying a percentage regardless of income.
That’s why it’s a percentage. The less you make, the less you contribute. But to not be required to contribute anything just because of your (low) income level makes no sense.
If you don’t make enough, get a second job. Work more hours. There are plenty of jobs but not enough qualified people. Find a way to qualify for them. Or instead wait for the government break, handout, or safety net.
The more breaks and free rides people get the more lazy they become and the more handouts they expect.
Tax everybody.
I’m a 62 year old widow who has thoughtfully been trying to plan for the future and my retirement. I work about 30-35 hours each week, and collect partial Social Security benefits because of my work. I just found out last week that I will have to write a check to the government for nearly $5,000.00 even though I claimed “0″ and had additional dollars withheld from my paychecks. About 5 years ago I moved to s smaller home so I wouldn’t be retiring with a mortgage and I would be paying less in property taxes. I thought I was doing the right thing for a widow at my age. I’m learning that because I don’t have the large deductions any longer I end up paying more in income tax. My property tax and utilities are the same as a married couple, but I don’t get a break on that because I am alone. Presently I feel like being careful about spending and planning for the future has backfired on me. I’m all about helping others, but I’m afraid that the direction we are moving in this country is not going to motivate people. I don’t think our government should give tax incentives to people who cry poor but then feel a large flat-screen TV is a necessity…and I voted for President Obama!
Representation without taxation is becoming a problem. People who pay no taxes have no reservations against voting for someone who wants to massively raise taxes. Everyone who has any income at all should at least pay something in taxes. Let the freeloaders infest some other country.
A few years ago, my son didn’t earn enough income to require filing a tax return. The IRS filed one for him, and socked him with a big tax bill and penalty.
When we went to the IRS office, the agent told us that the only way to prove to the IRS that you don’t have to file a tax return is to FILE a TAX RETURN.
You read that last line correctly. The only way to prove to the IRS that you don’t have to file, is to file.
And they wonder why average people hate the IRS . . .
“It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government”.
Darn those rich, Mr. Obama when are you going to make them pay their fair share. Who else is going to pay for your social justice, spread the wealth policies.
Thank you Obama – may I have another…
The rich will always be rich, even with raising taxes, it is the group in the middle who are going to shrink.
If almost half don’t pay, then something is terribly wrong. They need to get off their rear ends and get with the program.
At 1st blush this does seem to be maddening. But you guys are looking at this all wrong. What this really says is the vast amount of the country’s money is owned by a small % of very wealthy. And almost half the country is in poverty. That’s worse than 3rd world folks.
Dividend income should be taxed at ordinary income levels, if you swing a hammer everyday or sit and open dividend checks that is all INCOME and should be taxed fairly at the same rate of taxation. The rich get off easy and the poor NEVER PAY, the middle class get nailed/blasted.
Do you guys who tie voting rights to taxes understand how stupid you sound?
Agree w John C also why does richie rich get to deduct mortgage interest on his mcmansion?
Also why do well off old people still get medicare and s.s.?
You heartless b-tards ripping on people in poverty all the while richies and oldies and military are the real problem. And you are too for being not smart.
In 1967 I was on active duty in Ong Thanh, about 50 miles north of Saigon. I did not volunteer for this. I was shot during the helicopter evacuation after the ambush by the NLF, and have not been able to work due my paralysis. I’m in the 47% and get a $2,200/mo (handout according to you folks). I must be one of the “lazy” people that should be denied the right to vote.
Sir, I for one do not or can I imagine any Patriot viewing any veteran as “lazy or demanding a hand out”. As retired Marine I say to you sir-take a moment and become aware of the FairTax movement-this is the only way of leveling the playing field for All Americans-that is what Democracy is all about-our elected politicians have created this unfair system-vote them all out-