TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Thursday, October 1, 2009

47% Will Pay $0 Income Tax in 2009

CNN, 47% Will Pay No Federal Income Tax:

In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.

Some in that group will even get additional money from the government because they qualify for refundable tax breaks.

CNN 

Update:  For more, see Joe Kristan, including his observation:  "So what happens when only a few taxpayers bear the burden of federal spending? This:

Spending

http://taxprof.typepad.com/taxprof_blog/2009/10/47-will-pay-0.html

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Tracked on Oct 1, 2009 7:37:57 AM

Comments

I'm certainly no fan of our tax system and particularly dislike the income tax. However, I can understand where below a certain income, a household cannot function well while paying income taxes, and thus understand a significant number of <50k households having no liability. However, how do households with income >100k have no liability? How are there 6,000 million-dollar households with no income tax liability?

(The discussion of *why* a household making <50k has more than 4 heads to it intrigues me, but hey, we live in a free country).

Posted by: Chris | Oct 1, 2009 7:11:22 AM

No representation without taxation.

Posted by: Burke | Oct 1, 2009 7:11:56 AM

There should be a floor (say 15%) of eligible voters who are exempt from Federal Income Tax. If funds aren't available for government programs, then the government has to cut back rather than increase debt plus raising the % of people that are eligible (e.g. the "Democrat" approach).

Posted by: mad-as-H | Oct 1, 2009 7:15:26 AM

In the beginning, if you didn't have property, something to lose, you couldn't vote. The 'vested interest' qualifier ensured you considered the impact of what you voted for. Today there are all kinds of taxes and fees, income tax being one among many. You choose to pay a sales tax, and support the services you are being taxed to provide, when you choose to procure a product or service. Where is the vested but endangered interest people are concerned about protecting via their vote?

We should clearly distinguish between fees paying for services provided via government vectors that accrue to the individual, and taxes which ensure our continued and Constitutionally specifically defined way of life.
Services which accrue to the individual, such as roads and parks, need to be paid for with fees that support them, ensuring an alignment between what "we" want and what "we" do with those fees. Taxes, as collected from individuals and corporations as a function of income, or capital gains, or death, should be allocated according to the wished of those that provide them, as indicated by their votes. No income tax, no vote. More income taxes, more votes.

Posted by: brahma | Oct 1, 2009 7:28:27 AM

About a week ago I posted a thought experiment that postulated that all income should be taxed at a low flat rate from $10-$24K, then income between $25K-$45K would be tax exempt. Income above that would be taxed at a never-increasing flat rate. In various flat-tax proposals that have floated around over the years, a 17 percent rate seems about the average proposed. Here's the link.

It is a very obvious observation that the tax code disincentivizes making more money by taking away ever-larger portions of the next dollar.

Why not flip it? Make it so that the way to pay less taxes (up to a point) is to make more money. Like I said, a thought experiment.

Posted by: Donald Sensing | Oct 1, 2009 7:32:20 AM

"An increasing number of households end up owing nothing in major federal taxes, but the situation may not be sustainable over the long run."

It's rather frightening that CNN thinks that this "may not" be sustainable...As is that isnt already obvious.

Posted by: Mick Kraut | Oct 1, 2009 7:36:17 AM

Ah, but there are still 6,000 millionaire households that don't pay any tax. We need to crank up the AMT!!

Posted by: Stanislaw | Oct 1, 2009 7:46:49 AM

Well, this just makes me sick to my stomach.
Tyranny of the majority over the minority, anyone?

Posted by: JimYoYo | Oct 1, 2009 7:56:45 AM

Is there a breakdown by party affiliation? I think it would be helpful in these turbulent economic and political times if more voters understood that most Democrats pay no income tax. (And I am not just talking about cabinet members who ignore their tax liability.) Since they are the ones who always want to steal more from the taxpayer and grow the government, I think the lack of taxpayers among Democrats needs to be emphasized.

Posted by: Willis | Oct 1, 2009 8:08:05 AM

The only answer is for the current system to collapse under the weight of its idiocy. When only a few pay taxes, the few will finally give up supporting the many. In Karlifornia, 144,000 taxpayers (1 percent) pay 50 percent of the taxes. When we scale back, how will the 99 percent fill the gap? They won't. The government will simply have to downsize. It will be ugly, but no legislature will EVER vote to truly fix the system that confers so much power and perks.

We're close to the implosion. We've reached the apogee of big government viability.

Posted by: PD Quig | Oct 1, 2009 8:18:06 AM

Interesting graph. Where does GDP fall on that chart? Either federal spending is outgrowing GDP by a lot, or household income isn't growing like it should.

Or maybe there are just a lot more households, which makes the chart rather meaningless.

Posted by: Kevin | Oct 1, 2009 8:18:45 AM

"I'm certainly no fan of our tax system and particularly dislike the income tax. However, I can understand where below a certain income, a household cannot function well while paying income taxes"

That is fine, what is not fine is those people can vote to increase what they get from the rest of us.

Most of them pay local taxes, and they should vote in local elections. But why vote in something you have no vested interest and therefore no cost. People weigh costs and benefits when making decisions, but these people have no costs at all, therefore nothing to stop their influence to pile on as many benefits as they want, paid for by the rest of us (until we have no money left).

That would be like me voting in the UN, or Canada, to influence their policies regarding the US.

Posted by: plutosdad | Oct 1, 2009 8:18:50 AM

Looking at the chart of government spending makes me nostalgic for the duo of Bill Clinton and Newt Gingrich. 1992-2000 is the only time the spending curve has been bent below its trend line in my lifetime. The curve from 2000 to the present is a disgrace for a Republican president; hell, it would be a disgrace for a Democrat. For a Republican it is sheer insanity.

I never thought I would miss the old rogue Clinton, but I do. As a hard core right winger I hate to admit it, but Clinton was a better President than Bush. If he'd been able to keep it zipped up, he would rank with Reagan and Roosevelt.

Didn't vote for Obama, but I had hopes that he could be another Clinton. So far that is turning out to be laughably off the mark.

Posted by: John Skookum | Oct 1, 2009 8:23:30 AM

Where did that 6,000 number of millionaire households that pay no tax come from? I've checked a lot of places and could not find that statistic. I wonder how many are self employed/small business owners that have a high income but have all of tax liability erased due to business losses, carry-overs from prior year AMT payments, or foreign tax credits?

Posted by: JohnnyL | Oct 1, 2009 8:32:58 AM

Comparing medain family income with national spending is comparing apples and oranges. The population has grown a bit since then I believe. Anyone whose "research" is this bad obviously has an agenda and is not to be trusted as a reliable source. What is more important is comparing government spending in 1970 and now as a percent of GDP. oh I see the source for the chart is the Heritage Foundation. That explains that.

Posted by: Bill Turnier | Oct 1, 2009 8:33:22 AM

Has anyone seen figures that list the amount of EIC (Earned Income Credits, or "gifts,") given out? This what the large tax preparer firms count on.

Posted by: Bob | Oct 1, 2009 8:39:08 AM

When the people find they can vote themselves money, that will herald the end of the republic. Benjamin Franklin

Posted by: Rob | Oct 1, 2009 8:53:48 AM

How are there 6,000 million-dollar households with no income tax liability?

How many members of Congress are there?

Oh wait, you asked "don't" not "won't". Never mind...

Posted by: Todd | Oct 1, 2009 9:13:32 AM

I think every household should pay SOME tax, no matter how small. That would teach some small degree of fiscal responsiblity to the poorest class. And since they get the most benefits, it seems appropriate that they shoulder some token amount of their burden. The government would undoubtedly just increase their payoffs to compensate for the tax amount.

Posted by: vejadu | Oct 1, 2009 9:31:16 AM

This seems odd to me. Everyone I know pays federal income taxes; hell, they get them deducted from their paychecks. Am I not getting out enough? People may ave enoug deducted during the year so tat they get a refund, but they are still paying their tax.

And I should mention that most of them are Democrats.
Let's take teachers; most, supposedly are Democrats, but all pay taxes. I assume the same is true for firemen, police, etc.; in fact, anybody with a decent job. Are there that many perfect tax shelters out there?

Posted by: Dwight | Oct 1, 2009 9:42:56 AM

OK, here's a suggestion: everybody gets one vote just for existing; and then everybody gets one additional vote for every thousand dollars paid in taxes. Some taxes, like the sales tax, can't reasonably be itemized but we can probably make an estimate based on income and be fairly close.

Posted by: PersonFromPorlock | Oct 1, 2009 10:28:03 AM

Bill: "Comparing median family income with national spending is comparing apples and oranges."

Exactly. C'mon TaxProf, you know better than this.

Posted by: euphrosyne | Oct 1, 2009 10:49:39 AM

I agree with Chris ... no representation without taxation ... If you not paying income taxes then you shouldn't get a federal vote ... unless you're a vet. Veterans have earned their "right" to vote, the non-vet "right" should be based on whether or not they contribute financially.

Posted by: lobosolo | Oct 1, 2009 10:55:40 AM

While I appreciate the information, as an analysis it falls far short that it could lead to erroneous conclusions.

First, this is only Federal income tax. Federal social security, Medicare, and excise taxes bite and bite harder at levels the income tax no longer reaches.

State sales taxes are also biting the lower incomes and many bear the costs of local property taxes.

A better conclusion is that the total tax burden is likely to shift more and more onto a tax paid by a minority. So this analysis should better focus on how the federal income tax is becoming a more atractive target for politicans wanting to increase revenue.

Of cousre, Obama has a VAT in mind for us all.

Posted by: Whitehall | Oct 1, 2009 12:36:31 PM

For anyone interested in multiple vote scenarios, get a copy of 'In the Wet' by Nevil Shute (properly Nevil Shute Norway). It posits a multiple vote system where you can earn extra votes: armed service was one possibility, family stability (raise the kids, no divorce) was one, paying a certain amount in taxes, etc.
Very interesting thought experiment on the effects of such a scheme, all based within an extremely interesting piece of fiction. The man was a good writer...Also wrote 'A Town like Alice', 'On the Beach' and 'Trustee from a Toolroom, all of which were made into movies.

Posted by: R. G. Newbury | Oct 1, 2009 1:25:01 PM

Dwight,

I have a friend that is a firefighter. He bought a house and got the $8,000 credit. That credit has now wiped out all federal income taxes he paid over the past three years. So anybody receiving that credit most likely did not pay any federal income taxes at least this year.

Also, tax withheld <> tax liability.


Dwight & Others,

As for the "Over $1m" group, that is based on "cash income" I believe according to the actual report (not the CNN article). "Cash income" does not include any itemized deductions or contributions to retirement plans, among other things. So, somebody could possibly have $1 mil "cash income" but much lower taxable and also various credits (refundable long-term unused minimum tax credits definitely come to mind) that offset any tax liability.

Posted by: Joe C. | Oct 1, 2009 1:31:14 PM

Anyone bother stopping to think maybe the reason for the growth in federal spending could be that the rich are paying so much more *because they're making so much more*?? Look at any reliable measure of wealth and it's very easy to see the gap between rich and poor has widened into a democracy-killing chasm. Does no one remember basic poli sci? Democracy with no real middle class is unsustainable. Top-heavy economies will topple over into either anarchy or (more likely, unfortunately for anyone with less than a couple million in assets) dictatorship.

How many of you complaining about people paying no income tax have ever tried living on 40k a year in any major city in the US? It's f-ing near impossible. Have some common sense, people.

Posted by: The Law | Oct 1, 2009 1:32:57 PM

I'm still trying to find a Democrat in Congress who actually pays his taxes.

Posted by: Blue Heaven | Oct 1, 2009 3:42:23 PM

I am still looking for any Republican politician who tells the truth or has anything useful to say.

Posted by: The Real Law | Oct 2, 2009 3:02:46 AM

Hmmmm.

"How many of you complaining about people paying no income tax have ever tried living on 40k a year in any major city in the US? It's f-ing near impossible. Have some common sense, people."

I'm single and my annual expenses amount to -under- $20,000 a year.

That includes housing, car, food, medical, insurance. Everything.

I live in central New Jersey, Monmouth County.

I make in the $80k-$100k range easy and quite often far more than that depending on how much I want to work and how Galt I'm feeling.

*shrug* it isn't easy, but certainly not impossible. It just means I spend less time doing things that do not accomplish anything.

Posted by: memomachine | Oct 6, 2009 8:22:37 PM

I am still looking for any Republican politician who doesn't rape babies in Gitmo to get their parents to talk. That's why Obama refused to release the human rights abuse evidence.

Posted by: Dave | Oct 7, 2009 6:07:11 AM