March 11, 2010
Tax Foundation: 52 Million (36%) of Tax Returns Pay Zero Income Tax
A record number of the 142 million tax returns filed in 2008 resulted in no tax payment, according to a Tax Foundation analysis of IRS data. That means the tax filers got back every dollar that had been withheld from their paychecks, and often more. Roughly 51.6 million tax returns, or 36.3 percent, were filed by such “nonpayers,” people whose exemptions, deductions and credits wiped out any federal income tax due.A family of four earning more than $50,000 can have no income tax liability after taking the standard deduction and the child tax credit.“Two records were set in 2008: the most nonpayers and the highest-earning nonpayers,” said Tax Foundation President Scott Hodge.
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The federal individual income tax is by far the largest source of operating revenue for the government. The Tax Foundation... [Read More]
Tracked on Mar 11, 2010 8:53:17 AM
This is exactly why the Keynesian model most "Western" states subscribe to won't work: to finance their economic shenanigans states need to tax but in doing so they curtail economic activity (100 dollars raised by taxes result in LESS than 100 dollars spent, as a lot gets lost through the administration itself so it can NEVER work). In turn this leads to slowdowns that call for further "stimulus" which obviously can't make up for the previous losses, as all state expenditures are less than what is raised by either taxes or through bonds etc. So they try t think of other "ingenious" ways like value added taxes which indeed also target the lower income, income-tax-exempt, brackets or in short, are just a ruse to postpone, but only by a few years, inevitable sovereign bankruptcy.
Posted by: CrisisMaven | Mar 11, 2010 10:58:22 AM
That's not enough! We need 95% of the people not paying and only 5% of the greedy wealthy people supporting the rest of the nation. Obama will fix that.
Posted by: Woody | Mar 11, 2010 12:28:54 PM
All but the poorest should pay something so that they are fully invested in keeping government on the level and don't become welfare drones.
Posted by: ahem | Mar 11, 2010 2:22:32 PM
How about removing voting franchises from all who do not pay taxes? seems only fair - no skin in the game - no vote. It think this might be applicable at all levels of government.
Posted by: Garrett | Mar 11, 2010 2:26:13 PM
Chris - sounds like another insane liberal idea! - what happened to people paying their fare share? - 95% - INSANE!!!!
Posted by: Marc Johnson | Mar 11, 2010 2:29:32 PM
People not paying income tax but able to cast votes? A very dangerous combination which can only create a class of folks who want a continuing flow of free "programs" but have absolutely no stake in paying for them.
Posted by: Ray | Mar 11, 2010 2:48:40 PM
These people have no incentive to ever vote for anyone promising to cut taxes because they don't pay taxes. They have a vested interest in voting for politicians who'll give them even more "free stuff." As the trend continues and that 36.3% becomes 50.1%, we'll reach the point where America as we know it will cease to exist.
Posted by: Larry J | Mar 11, 2010 2:52:23 PM
Please note that this trend continued to increase under a GWB and a Republican congress. It is not an 'Obama' issue but more a reflection on bad leadership from both sides of the aisle.
However, I think we will see a Huge increase when the 2009 numbers come out with the new home buyer tax credit added to the mix.
Posted by: CJ_n_PA | Mar 11, 2010 2:57:27 PM
Not only are millions not paying any taxes, millions are getting 'free' money due to the various credits. The IRS has turned into a welfare program for a huge number of people.
Posted by: Guy | Mar 11, 2010 3:00:55 PM
Why stop at the top 5% paying. Just make the top 10 earners pay for all of it and borrow the rest.
Posted by: jmc | Mar 11, 2010 3:01:42 PM
How about a system where you get one vote for each dollar of tax you pay, minus one vote for each payment of a dollar you receive from the government (fed, state, local) - wages of government employees, contracts, social transfer payments, payments made on your behalf (medicare etc.) We use our new biometric social security cards to keep track.
You can vote in any jurisdiction where you have a positive balance. Sales tax payments will be tracked similarly to VAT taxes in Europe (i.e. you keep receipts). Entity taxes (corporate etc) and deductions (government contracts) will be attributed to their owners on a weighted average ownership scheme. once a year, you get a 1099-Vote, which tells you how many votes you get and in what jurisdictions (would make it fun to be a large company shareholder, since you would get to vote just about everywhere). Entities that pay no taxes (charities, insurance companies, etc.) would get no votes. Defense contractors would probably be negative, and would actually cost their stockholders votes. Government workers (and therefore their unions) would get no votes.
In the beginning, one can assume that the government would be controlled by high tax paying entities and individuals, who would then, one assumes, work to diminish their tax burden. This of course would reduce their voting strength, increase the voting strength of the higher taxed voters, and eventually a balance would work itself out.
Posted by: DoctorOfLove | Mar 11, 2010 3:18:36 PM
Chuckle. As I recall, the top 5% already pay something like 95% of all federal income taxes. The little extra wouldn't do a thing. I am sure that Crisis/Maven has his tongue firmly in cheek, but I wonder at those who do not think we all should bear the cost of government. And I know all about the FICA/Medicare taxes. These are supposed to be tagged for those purposes...not the general costs of running the army and the various departments. There should be a minimum tax (1%?) paid on gross income be everyone. There might be a little more attention paid to expenditures.
Posted by: jimb | Mar 11, 2010 3:18:44 PM
So looking at the chart, it shows a spike during the Bush Tax Cuts, which took more people off the tax rolls. Record numbers of people, already at the bottom end of the income scales, were exempted completely from paying taxes.
And still, tax revenues rose to record levels. Why? Because the marginal rates dropped, and capital gains and dividend rates dropped, and the reward incentive was apparent -- work harder, do better, keep more of what you make.
And still it raised more tax revenue for the government, to fund whatever they wanted to fund.
And even that record level of revenue was out-spent by the ever-greedy congress.
- Tom Delay failed when he said there's no place to cut the budget
- Repubs failed when they overspent.
- Dems replaced them in 2006, and things got even worse... now we see what a difference PROFESSIONAL overspenders make vs the amateur republicans.
- Then came Obama, the 60 vote majority, and the huge House. And Hubris & impunity on the Democratic side.
- And the deficits now are higher in a month than most full years.
- $220BB in a month!
Tax revenues are plummeting now, because businesses and people see the lack of incentive to push harder, since the Congress and Administration is signaling a return to pre-bush tax levels.
Soon, the rates at the high end will rise.
And total revenues wil fall even more.
This is a doomsday scenario.
It is a no-win scenario.
Unless you are a socialist, and intend for this to happen.
Posted by: Travis | Mar 11, 2010 3:25:53 PM
DoctorofLove, Just one question. How does Military Pay and Military Retiree Pay fit into your equation? I would hope there is recognition that they are paying/have paid their taxes using a different form of currency.
Posted by: juvat | Mar 11, 2010 3:33:48 PM
Ray and Garrett:
If paying taxes is a requirement for voting, you will disenfranchise a huge segment of the senior class who now are no longer paying income taxes due to retirement.
It is perfectly legal to make $10,000,000 and pay taxes on it until age 50, then withdraw $50k per year with the rest in tax-free bonds, have zero liability.
Or my own mother, who has no pension, lives on SS and a modest savings.
Are these people part of the problem? Should they be denied the vote for the rest of their lives?
Posted by: Travis | Mar 11, 2010 3:36:58 PM
Simple solution: Total income is taxable, no deductions.
First $25k earned taxed at x%
Income between $25k and 75K taxed at y%
Income between $75k and 250K taxed at z%
Everybody pays the same percentage of taxes on their income, at each level. If you don't make enough to pay Z%, it's not a problem - you've still paid ONLY the same amount as someone who has on the income you received. Unfortunately, that would cut out all the games Congress plays to buy votes, so it'll never go anywhere.
Posted by: Old Patriot | Mar 11, 2010 3:42:33 PM
Posted by: J.C. | Mar 11, 2010 3:50:06 PM
No Representation Without Taxation!
The article excerpt is a bit confusing however: was it 142 million taxpayers who ended up not paying federal taxes, or was it 51.6 million?
Posted by: Randall Hobbet | Mar 11, 2010 3:54:38 PM
If a person pays NO income tax, they SHOULD NOT be allowed to VOTE FOR PRESIDENT, period. Their vote concentrates too much power into a single institution - and liberals worry about Lobbyists and Corporate Power?
Posted by: CitizenCain | Mar 11, 2010 4:19:02 PM
As the table above shows, income taxes are less than half of federal receipts. Most other tax revenues come from Social Security, Medicare, and excise taxes, which are paid by the nonrich.
Thus, the whole argument is a big fat lie.
Posted by: ML | Mar 11, 2010 4:28:40 PM
I would imagine that almost all of the "Non-payers" actually pays income tax in the form of FICA taxes.
Posted by: Anonymous | Mar 11, 2010 4:34:10 PM
Not to be a wet blanket, but I would consult with Dame Thatcher and/or British historians on the political affects of Poll Taxes... Jes' sayin..
Posted by: Dr. Kenneth Noisewater | Mar 11, 2010 4:53:57 PM
Consider this. My wife and I have four children. They all have college savings plans and other investments with fairly small balances and income. All have to file. This year none made enough to have to pay income tax and none of them can vote. Have these savings plans increased much in the last ten years? How much does this skew the data?
Posted by: Bob | Mar 11, 2010 4:54:46 PM
We've managed to go from no taxation without representation to representation without taxation. Awesome.
Posted by: Mauther | Mar 11, 2010 5:05:01 PM
The number of non payers is horrendous but remember that one of the reasons for the increase in numbers is that in order to qualify for EITC and other tax credit gifts that are refundable earners must file a return. I suspect that the number of refundable credits has increased in recent years eg the EITC compared to past years. In order to get the amounts available from the increased tax credits you have to file a return as opposed to getting a welfare type check for assistance in the mail directly.
Posted by: phaedruscj | Mar 11, 2010 5:51:22 PM
I would be willing to bet that most of this is caused by the Child Tax Credit currently being $1000. It drops down to $500 in 2011 which will suddenly put a lot of people back into the tax paying category.
Posted by: Evan R. Hanson | Mar 11, 2010 7:12:39 PM
Thus through clever statistics do the wicked fool the honest and succor the stupid.
The lobbying group who created these statistics fail to tell you two things: first, they count as "nonpayers" everyone who has fully paid their tax debt through payroll withholding. So, if you do your W2 right, you're suddenly a "nonpayer." Second, in order to get to 150M tax returns, they are counting every single corporate tax return out there, including returns like the one my condo association files every year. The condo association doesn't do anything taxable, so they don't have to pay any taxes. So, it artificially swells the ranks of "nonpayers."
People who argue that we pay too much in taxes need to explain one thing to me: why should anyone get a second Mercedes when there are kids in this country who go to bed hungry? If you can justify that, you can have your upper-class tax cuts. If you can't justify that, STFU with the whining and realize that you enjoy some of the lowest tax rates in the First World.
Posted by: RationalThinker | Mar 11, 2010 7:44:34 PM
Teabaggers???? We need to move back to the system that worked & made this country great, before Reagan gave it away to the wealthy bankers. It is real simple; If you make lots of money, YOU PAY LOTS OF TAXES! If you are at or below the poverty! level, YOU DON'T PAY LOTS OF TAXES!
When times are good, the wealthy can make lots of money. When times are touch, they don't make lots of money! When times are like they are today, anyone making lots of money NEEDS TO PAY LOTS OF TAXES. Unless you think the family that can't afford food should starve.
Disgusted with my America
Posted by: Joe | Mar 11, 2010 7:45:11 PM
I am single, made just over $37,000 and have the great honor (Sarcasm) of paying over $3,000 in taxes this year. While my lazy brother who "doesn't want to work" his words, with two kids will get over $5,000 back because he works a little bit. Just enough to get beer money. This chaps my ass.
Posted by: Single Taxpayer | Mar 11, 2010 8:27:41 PM
The spike in "No Liability" filings after 2000 - Bush's "tax cuts for the rich" sharply boosted the proportion of taxes paid by the rich, and as jimb noted, also sharply boosted the absolute amount paid by the rich.
A highly progressive tax code is great while the economy is good, but when it turns bad the income of the rich falls faster - fewer bonuses, capital gains, etc. - so tax revenues become more volatile to the business cycle.
A related issue is the "rich getting richer" argument that is based on pretax reported income - usually Adjusted Gross Income. When tax rates are low the rich take more of their income in taxable form and are also incented to earn more.
The tax code doesn't cause income inequality to grow or shrink, except as it affects reported income and incentives. Sure, high tax rates will make the riches' AGIs go down. But that's not a good thing.
Posted by: MGCC | Mar 11, 2010 8:31:07 PM
1. People and or groups that cannot vote are not taxed.
2. Each Representative vote is directly proportional to the number of people who voted for him/her.
3. Each rep can only spend the tax revenue from his voters.
4. Unspent revenue from each Rep is refunded to his voters at the end of each fiscal year in proportion to the amount each paid.
Posted by: Dowlan Smith | Mar 11, 2010 8:50:27 PM
A counter to this problem, voters able to vote free things at the public largess, is a flat tax.
Everybody pays the same percent.
The problem with the flat tax as a solution to this or other problems is the absence of a list of steps to accomplish it.
Who can step up and give us a list of steps that will take us from our current tax system to a flat tax system--without creating great social upheaval?
Too many people have their own pet deductions that they cling to, when considering a new tax system. Deductions that are clung to, and that prevent clearly seeing our way to a better tax system--each of us giving up the comfort of the deductions we can claim from the system now.
But a flat tax would solve the expansion of the non-tax-payer-but-voter class.
Posted by: skm | Mar 11, 2010 8:52:30 PM
Don't forget the 15 million tax units that don't even have to file. Add those folks and you move for 36% to 42% of 'tax units' that don't pay any income taxes. Add in another 10% that pay next to nothing and we've zoomed past the tipping point. . .
"2004 - In addition to these non-payers, roughly 15 million individuals and families earned some income last year but not enough to be required to file a tax return."
Posted by: Steve Adams | Mar 11, 2010 8:55:49 PM
That's because IT'S THEIR BLOODY MONEY that they lend the Fed at 0% interest so they can protect the rich from the rest of us. Without it, what's to stop me from taking from you whatever I want, your degrees?
If you read your own graph, you'd realize that steep slope that started in 2001 is the direct result of the Bush tax cuts, which have yet to be rolled back. Sounds like welfare wealth is your culprit, Prof, but you already knew that didn't you?
Posted by: Tom Theodosiades | Mar 11, 2010 9:07:31 PM
Evan, if you want to blame starving kids on 2nd Mercedes buyers, you are deluding yourself. This government is bloated, wasteful, and cannot support its current obligations. And it's not about the tax revenue, it's about the spending. And no amount of lecturing from moralistic imbeciles like you will change that fact.
Don't begin to tell me what I can and cannot have, and what I should and should not do instead based on your stilted view of the world. 2nd mercedes or even 1st can also cost $15,000 -- USED. We actually bought one for just that reason.
In your world if the poor starving kid's father is a mechanic running his own garage, well now he's out of a job because you don't want people to own second cars. Freaking moralistic idiot.
Posted by: Travis | Mar 11, 2010 9:10:47 PM
Evan R. - The reason they get a second Mercedes is they earned it.
Children who go to bed hungry have parents who are at fault.
Your basically saying that people who work 70 hour weeks to get rich (and that is how much you have to work or more), should pay for the bad planning, and stupid descision making of these people pumping out babies they cannot feed.
It is not my job, and not their right to have anyone carry them for their stupid choices in life.
That is justified in my mind and most sane people.
I may CHOOSE to give my money to charities that provide for these children, but that is my choice and not the goverments right to take it at the point of a gun just to buy votes.
Posted by: Cale | Mar 11, 2010 9:46:02 PM
What % of all these refund-only returns are FRAUD? Accountants are doing everything they can to stop the fraud, but if someone has Soc Sec cards that look and feel real, their hands are tied. Gangs are now getting into the tax FRAUDing business because Congress and the IRS have both made it way too easy for people to steal from US.
STOP ALL REFUNDS that do NOT have IRS-verification. aka, STOP those RALs and other loans-based-on-refunds!
Posted by: Janai Simpson | Mar 11, 2010 9:57:35 PM
Everyone gets one vote. Then for every $10,000 in fed taxes, you get another vote. The people who claim that the wealthy don't pay taxes would be happy and those of us with brains would have more say over where our money goes.
Posted by: TheOldMan | Mar 11, 2010 10:10:40 PM
FICA isn't really a tax, you are paying into Social Security, "Theoretically" you get it back one day, maybe more than you paid in (like now) or it will be broke when you get there.
Posted by: DA | Mar 11, 2010 10:22:55 PM
There is something wrong with this chart at the top of the article. It seems there are two sets of data overlaid that make it so you cannot follow the percentage and number of non-paying-filers across the chart. These are different data.
On the left side of the chart is millions of filers. On the right side we have % of filers.
That works if the number of total filers stays the same, IE 30% of filers in 1950 is a different number than 30% of filers in 2010. Because the number of people in the USA has increased significantly.
These are separate data: % of non-paying filers and number of non-paying filers. Probably needs to be 2 separate charts or the missing info of how many filers in each year shown as well.
Not saying there is any intent to deceive, but the chart is just funny to be drawn this way.
Posted by: skm | Mar 11, 2010 10:25:40 PM
Don't forget, about the top 8% of the USA controls 92% of the money. Even if 92% of us didn't pay any taxes, it wouldn't make a dent.
Posted by: Bengie | Mar 11, 2010 11:49:57 PM
I own a very small business. I won't even classify as a micro-cap. I pay no income taxes. I take a small amount out to cover my personal expenses and put the rest of the profits into growing the business. I make my own way and sometimes provide incomes for employees, but we aren't making huge profits to take home. Most small companies barely make it even during good times, but we do provide a living for lots of people who do pay taxes.
Posted by: Curt | Mar 12, 2010 12:55:14 AM
There you go: the rich can afford the accountants needed to dodge income taxes. Voila!
Posted by: Urinal Gum | Mar 12, 2010 1:15:03 AM
It's not worth arguing about. Fair Tax would eliminate this class warfare when it comes to taxation. The only argument against the Fair Tax is that you believe in punishing wealth!
Posted by: Maurice Dion, Jr. | Mar 12, 2010 2:50:00 AM
the top 5% already pay something like 95% of all federal income taxes
That's the top 5% who do pay. I'd be interested to see how many of the top 5% as measured by their control of assets actually pay anything at all.
Posted by: Jenna's Bush | Mar 12, 2010 8:49:40 AM
Just for clarification, the name of the commentor appears below the comments not above. I didn't write the Mercedes post.
Posted by: Evan R. Hanson | Mar 12, 2010 8:56:07 AM
Among the many oversimplifications in this report and (especially) the comments after it is the overlooked fact that the federal income tax is NOT the only tax in this country! NOBODY pays no taxes, and the only people who come close are the very poor and the very wealthy.
Posted by: Dan | Mar 12, 2010 9:36:06 AM
I apologize for using the word "lie" a few post ago since that implies willful dishonesty rather than sloppiness.
But I just want to remind y'all that in addition to paying federal taxes (and yes, FICA is a tax since you have to pay it to the government and you don't get it back if you die young), non-income tax payers also pay state and local taxes, most of which are hugely regressive.
Posted by: ML | Mar 12, 2010 9:36:19 AM
If you are:
B) Have children
C) Working overtime in states like Virginia
Congratulations, you will always receive money back. The government gives you a tax credit per child to account for the fact you have to feed a dependent. So if you're struggling, yes, you get money back.
In addition, a lot of people who lost their jobs and haven't found new ones became dependents for others. Guess what this means.
This isn't some shocking failure of the system, this is an indication of how bad off the people are right now.
Posted by: [$Error] | Mar 12, 2010 10:09:57 AM
I had to pay over $11,000 in taxes via payroll deduction last year, and then the IRS came calling for an insulting $50 extra at tax time.
So if I just have the girlfriend pop out a child or two, despite the fact that we are NOT in a healthy financial situation (we live in downtown Houston, where I have to be, due to work), I could end up earning back more than I spend in food and medical (since that's covered by my employer almost entirely) on the kids?
Why is it a good thing the government is essentially making it financially IRRESPONSIBLE of me NOT to have kids at a time when I should most definitely NOT be having them?
Posted by: Annoyed | Mar 12, 2010 11:12:42 AM
Uhhhh.... Many of you are missing a key point. These are not all people who are paying no taxes. They're people who don't owe MORE taxes when they file. Most have been paying taxes all year long via money withheld from their paychecks. The 35% represents people who have paid in full all their taxes or overpaid. Not people who are getting a free ride. (A few are, yes, but not nearly 35%.)
Posted by: DougM | Mar 12, 2010 3:37:38 PM
51.6 million people got back ALL of their payroll taxes? My ass.
Posted by: acesh | Mar 12, 2010 4:00:07 PM
We should have a system that provides massive tax breaks for corporations and the rich, shifts the federal tax burden heavily onto the middle class, eliminates Social Security, privatizes Medicare, and creates a health care system that punishes the sick. In other words, what Paul Ryan proposes.
Posted by: Vicente Fox | Mar 12, 2010 5:16:01 PM
Marc Johnson: "Chris - sounds like another insane liberal idea! - what happened to people paying their fare share? - 95% - INSANE!!!!" - the commentor's name is BELOW the comment ! :-)
Posted by: CrisisMaven | Mar 24, 2010 9:02:59 AM