Friday, October 14, 2005
The Tax Foundation has published Countdown to Tax Reform, Part II: Taxpayers and Non-Payers as part of a series in anticipation of the expected November 1 release of the report of the President’s Advisory Panel on Federal Tax Reform, Here is a taste:
In addition to America becoming divided between single and married taxpayers (see Part I here), we are also becoming divided between those who pay income taxes and those who pay no income taxes. Many of the tax cuts enacted over the past four years—specifically the doubling of the child credit to $1,000 and the introduction of the new 10% bracket—were “targeted” to help taxpayers in the statistical middle-class. It is unlikely that lawmakers understood how powerful these measures would be—not only lowering the tax burden for millions of lower- and middle-income taxpayers, but knocking millions of people off the tax rolls entirely—turning them into non-paying tax filers.
Tax Foundation economists estimate that in 2004, some 42.5 million Americans (one-third of all filers) filed a tax return but had no tax liability after taking advantage of their credits and deductions. Figure 1 shows the percentage of non-payers between 1950 and 2004. During that period, non-payers averaged 22% of all taxfilers. Today, however, non-payers account for 32% of all taxfilers, a nearly 50% increase in the number of non-payers since 2000 and a 160% increase in the number of non-payers since 1985.
[click on chart to enlarge]