Who Are the Folks Who Don't Pay the Federal Income Tax?
The messaging on who pays the federal income tax has become a rallying cry for those on the right. Talk radio hosts and the Republican presidential candidates are continually railing against the “non achievers.”They frequently drop the federal income tax identification to imply that 50% of Americans pay no taxes.
The Tax Policy Center estimates that 46% of households will have no federal income tax liability in 2011. Just who are these folks who don’t pay federal income taxes? 22% are people who live on Social Security, which is exempt from federal income taxes. 50% are folks who don’t earn enough income to pay federal income taxes (For example, a family of four making 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 other 25% are people lucky enough to find loopholes that negate their tax liability or people who use tax credits and the earned income tax credit to lower their tax bills. Only a small percentage of the wealthiest tax payers pay no federal income taxes, but they are able to lower their bills significantly. According to Roberton Williams writing for Forbes in July, “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.”
All Americans- legal, illegal, rich, or poor- pay taxes. They may pay any or all of these: state income taxes, state and local sales taxes, payroll taxes, property taxes, personal property taxes, federal income taxes, and excise or franchise taxes. According to Who Pays, an analysis by the Institute on Economic and Tax Policy, in every state, low income people pay a higher percentage of their income in state and local taxes than higher income earners.
Low and middle income people tend to spend most of their income on items subject to regressive sales taxes. In fact, in 2010 the average percent of income paid in state and local taxes by the poorest 20 percent of Americans was 12.3%. Yet, the wealthiest 1 percent of Americans paid just 7.9% of their income in state and local taxes, on average.
The argument that 46% of Americans don’t pay taxes is ridiculous, and it painful to see these people characterized as lazy bums. In his article for Forbes, Roberton Wiliams concluded that “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.” I would add that rather than demonize folks who don’t pay federal income taxes because they don’t earn enough money, let’s work together to provide opportunity not only for jobs, but for better paying jobs, and to reform our tax code to reflect a more just system.
