TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, July 27, 2011

TPC: Why Do 46% of Americans Pay No Federal Income Tax?

The Tax Policy Center today released Why Some Tax Units Pay No Income Tax, as explained in Why Do People Pay No Federal Income Tax?:

Much has been made of TPC’s estimate that fully 46% of Americans will pay no federal individual income tax this year. Commentators have often misinterpreted that percentage as indicating that nearly half of Americans pay no taxes. In fact, however, many of those who don’t pay income tax do pay other taxes—federal payroll and excise taxes as well as state and local income, sales, and property taxes.

The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TPC paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children 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 basic structure of the income tax simply exempts subsistence levels of income from tax.

Tax Exp What about the rest of the untaxed households, the 23% of households who don’t pay income tax because of particular tax breaks? We divided tax expenditures (special provisions in the tax code that benefit particular taxpayers or activities) into eight categories and asked which ones made the most people nontaxable. The conclusion:

Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children (see graph). Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.

Tax, Think Tank Reports | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference TPC: Why Do 46% of Americans Pay No Federal Income Tax?:


The sad and sorry truth is that such a huge number of Americans are living below or very close to the poverty line and yet no one wants to talk about that.

Yes, we have to cut but those of us who are paying taxes especially are kind of getting tired of financing wars for zillions of dollars while we see so many of our neighbors in serious financial trouble. It's also difficult to watch companies get bailed out often for no good reason while familes are not bailed out at all. And now we are watching the President's financial advisors simply bail out: Immet is sending GE manufacturing for the medical industry no less to China while Soros is moving his money away from American audit eyes.

We have a situation where most of the people involved in our current fiasco are lawyers and next to none of them have even taken Accounting 101. In the private sector, jobs are becoming more and more specialized as fields become more complex and yet the government still has lawyers running all three branches and not only don't they seem to know how to add and subtract, they additionally seem to have skipped science courses along the way so that field is also a mess.

We now have a huge protected class of employees called civil "servants" who are living higher on the hog that their private industry counterparts who have no lifetime job security nevermind benefits to large to count. Why in heaven's name are government employees being given bonuses at a time when Rome is burning. Their job performance has been far from stellar and frankly we cannot afford one more dime for that particularly large group of the often politically chosen people.

So shame on us for voting for people who have put this entire nation on the line by spending more than they could reasonably expect to take in and often for Potemkin village enterprises. And remember, those many, many government employees may pay taxes but efficiency is not their claim to fame and the need for so many of them in this computerized age does leave one wondering.

Churchill was right: we have the government we deserve because we can't rely on the media and we just don't do the research we should before we cast our votes. Next time around maybe some pressure ought to be applied to that licensed media to do a thorough and impartial job of digging in to candidate's backgrounds and track records. And most of all, it's up to each voter to find out every thing possible and I suspect not many incumbants will pass the test for re-election.

We need to clean house and get rid of millionaires representing the poor and middle class and politics in this nation did not start out to be a profession. It's worth thinking about term limits which does go a bit against my grain, but it is a way to insure ourselves that there is a turnover of representatives who understand they are only going to be there for a short while.

And the use of Executive orders to circumvent the legislative process ought to be reigned in very, very tightly because it is making the President's office way too powerful. They just decide what they want to do and without votes or even blessings from the Congress, Executive edicts are replacing the legal process so We the People in the end can easily end up with a Hugo Chavez one man band calling the shots that aren't in this nation one man's job to determine.

Posted by: foggyworld | Jul 27, 2011 9:21:29 PM

Very very well said. Thanks.

Posted by: fjdietz | Jul 29, 2011 5:57:42 AM