Why more Americans pay no income tax

[zsdersw]

http://www.cnn.com/2010/OPINION/04/15/hodge.non.taxpayers/index.html?hpt=C2

Washington (CNN) -- If "taxes are the price we pay for civilized society," to quote Justice Oliver Wendell Holmes Jr., then April 15 is the day that bill comes due for every working American.

But that is no longer the case for a growing class of Americans for whom the price of civilized society has been reduced to zero because the tax code's generous credits and deductions completely erase their income tax liability.

And for many of these nonpayers, civilized society actually pays them a hefty refund, which is not much different from a welfare check except that it's run through the tax code instead of through the Department of Health and Human Services.

If tax year 2009, for which we are paying today, is anything like tax year 2008, then a record number of the nearly 142 million Americans who will file a tax return will get back every dollar that was withheld from their paychecks during the year. During 2008, more than a third of all tax returns resulted in complete nonpayment. Many got quite a bit more, turning Tax Day into a payday.

Over the past 15 years, politicians have been working overtime to create a blizzard of tax credits targeted to "help" the so-called "middle class."

They've created the child credit, which is different from the child care tax credit, unless you have a grown child and then you can use the education credit. And if you don't have a child, then you can get one using the adoption credit. If you don't care for a child, there's the credit for caring for granny instead.

But if you'd rather care for air than people, there's a credit for buying a hybrid vehicle, unless you'd rather put a solar panel on your roof, or simply replace all the windows in your house. Oh, don't have a house? Then there is the first-time homebuyer's credit.

The consequence of turning the tax code into a tool for social policy is that we now have a record 52 million filers off the income tax rolls. This means 36 percent of all so-called taxpayers actually pay zero in income taxes after taking their credits and deductions. But these figures don't include some 15 million people who work but don't earn enough to file a tax return. When these people are added to the non-payers, estimates the Tax Policy Center, the percentage of households who don't pay income taxes rises to 47 percent.

Nonpaying status used to be a sure sign of poverty or near-poverty, but Congress and the president have changed the tax laws to pull much of the middle class into the growing pool of nonpayers. The income level at which a typical family of four will owe no income taxes has risen rapidly, now topping $51,000.

Two arguments are often heard in support of growing the nonpaying population.

First, nonpayers are still liable for other federal taxes such as payroll taxes and therefore help with the cost of government. Secondly, all redistribution from higher-income to lower-income people is good by definition. Not so fast.

Many nonpayers receive generous cash payments through "refundable" tax programs such as EITC or the child tax credit so that all the other taxes they pay are offset as well. In fact, the IRS paid out more than $72 billion in these refundable tax credits in 2008, a higher amount than the employee share of payroll tax obligations of everyone who earns under $30,000.

As for all redistribution being good, the U.S. already has the most progressive individual income tax in the developed world, according to the OECD. Progressive tax policies take a large toll in added complexity and economic inefficiency, so at some point, we have to decide that enough is enough.

Tax years 2009 and 2010 are likely to produce a higher number of nonpayers than in 2008 because of Obama's new tax credits targeted at lower- and middle-income taxpayers.

As the number of refundable tax credits continues to grow, more and more tax filers are seeing the IRS as a source of income, not as a feared tax collector. That may be OK for the public relations department at the IRS, which now pays for ads nationwide touting its giveaways, but the nation needs the IRS to be a tax collector, not a welfare dispenser.

The real issue is that millions of Americans no longer have any skin in the game and are becoming inoculated from the basic cost of government. To them, government seems free and politicians can easily convince them to support more and more spending because someone else is going to pay the tab. This trend deserves a broader national discussion than either party in Washington seems willing to engage in.

Indeed.

 

[nick1985]

When everyone climbs into the wagon, nobody will be left to pull it.

 

[spidey07]

It is a very disturbing trend that needs reversing. But how else are they going to buy votes? To half of the country all this big government is great because it's "free".

 

[MotF Bane]

The so-called "progressive" tax system is broken.

 

[Carmen813]

The last paragraph is what I've been saying for a while now. It will take a combination of budget cuts and tax increases (of varying degrees across all incomes) in order to fix our federal budget problems.

 

[OutHouse]

everybody pays taxes at the state, county and local levels.

 

[highland145]

FYI: Had a couple that grossed $55k paid $681 fed, $1660 state during the year. Got a fed refund of $6859 and state $1076. They have 5 kids.

 

[nick1985]

FYI: Had a couple that grossed $55k paid $681 fed, $1660 state during the year. Got a fed refund of $6859 and state $1076. They have 5 kids.

I feel warm and fuzzy inside knowing I gave them my money. I'm sure they earned it more than me.

 

[highland145]

I feel warm and fuzzy inside knowing I gave them my money. I'm sure they earned it more than me.

The only fuzzy I got was the $100 I charged because they had to have a "rapid refund."

 

[Genx87]

FYI: Had a couple that grossed $55k paid $681 fed, $1660 state during the year. Got a fed refund of $6859 and state $1076. They have 5 kids.

I have heard about this before. That somebody making something like 20K can walk away with like 6-8K from the feds. I will have to try and find the article. Basically the taxpayer just subsidized about a quarter of their yearly income.

 

[nonlnear]

everybody pays taxes at the state, county and local levels.

And with growing federal mandates on the state and local programs, they are increasingly a proxy for federal taxes. This way the feds get to give out candy to all the good little boys and girls, and contract out their thumb breaking, while at the same time making it harder and harder for state and local governments to operate on small government principles.

 

[highland145]

I have heard about this before. That somebody making something like 20K can walk away with like 6-8K from the feds. I will have to try and find the article. Basically the taxpayer just subsidized about a quarter of their yearly income.

http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

 

[Sclamoz]

Why focus only on the middle & low income tax payers?

The report did not name any companies. The GAO said corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries.

With the U.S. budget deficit this year running close to the record $413 billion that was set in 2004 and projected to hit a record $486 billion next year, lawmakers are looking to plug holes in the U.S. tax code and generate more revenues.

Dorgan in a statement called the report "a shocking indictment of the current tax system." Levin said it made clear that "too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States."

The study showed about 28 percent of large foreign corporations, those with more than $250 million in assets, doing business in the United States paid no federal income taxes in 2005 despite $372 billion in gross receipts, the senators said. About 25 percent of the largest U.S. companies paid no federal income taxes in 2005 despite $1.1 trillion in gross sales that year, they said.

http://www.reuters.com/article/idUSN1249465620080812

 

[MJinZ]

When everyone climbs into the wagon, nobody will be left to pull it.

Robots.

 

[Genx87]

With the U.S. budget deficit this year running close to the record $413 billion that was set in 2004 and projected to hit a record $486 billion next year, lawmakers are looking to plug holes in the U.S. tax code and generate more revenues.

Oh those were the days.

 

[Carmen813]

Why focus only on the middle & low income tax payers?



http://www.reuters.com/article/idUSN1249465620080812

I saw something interesting on the Daily Show that I really don't know the substance of, but apparently Exxon Mobil had $35 billion in profits last year and paid $15 billion in taxes. Not a single penny of which went to the U.S.

 

[highland145]

Here's a better one from 2 years ago.

Guy made $15.3K, paid $1544 fed and $759 state. As dependents claimed his sister, who gets a federal SSI check every month for ~$600, and her 2 kids, one of which gets a SSI check for ~$600 every month.

Got a fed refund of $7691 and state of $759.

Happy to make everyone's day.

 

[highland145]

Why focus only on the middle & low income tax payers?



http://www.reuters.com/article/idUSN1249465620080812

Can you say flat tax?

 

[paperfist]

FYI: Had a couple that grossed $55k paid $681 fed, $1660 state during the year. Got a fed refund of $6859 and state $1076. They have 5 kids.

That makes me ill inside!

I'm self employed, single and childless and in '08 I made $15k more then them and paid $9k+ out in taxes.

I have a friend who's married with 4 kids and they make like $40k a year and get back $8k+ in taxes. I basically work for them

Tax day for so many people is now auto shopping day. The get a refund and go buy a car. I can't remember the last time I got a refund.

 

[Carmen813]

The government subsidizes having children. It probably should stop doing that.

 

[CADsortaGUY]

The government subsidizes having children. It probably should stop doing that.

The gov't subsidizes old people. It probably should stop doing that.

 

[CycloWizard]

The government subsidizes just about everything. It probably should stop doing that.

Fixed.

 

[paperfist]

The gov't subsidizes old people. It probably should stop doing that.

Whom paid into the system while working...

When you have kids who don't work how are they paying into the system?

 

[highland145]

Whom paid into the system while working...

When you have kids who don't work how are they paying into the system?

Cuteness factor?


NOT.

 

[blackangst1]

Looks like the Obamas paid about 33% for last year, up about 1% from 2008. But their income was doubled also.

http://www.marketwatch.com/story/obamas-report-2009-income-of-55-million-2010-04-15

President Barack Obama and First Lady Michelle Obama reported income of $5.5 million for 2009, the White House said Thursday, with most of the income from proceeds of sales of the president's books. The Obamas paid about $1.8 million in federal income tax and donated $329,000 to 40 charities. For 2008 the Obamas reported wages of about $200,000 as well as earnings of $2.6 million from book sales.