Wednesday, August 31, 2011
Nearly half of American households won’t pay any federal income tax this year. That doesn’t mean there’s a big pot of revenue waiting to be tapped.
Decades of tax policy decisions have created a complicated system that vulnerable populations have grown to depend upon. The lowest-earning Americans have been taken off income tax rolls completely, and the tax bills of low-income workers, the elderly, and families raising children have been reduced through a series of tax credits, deductions and exclusions that have crept into the code and grown more generous with time. Only a small portion of the non-taxpayers are in the upper income brackets with lots of tax breaks.
This puts politicians on both sides of the aisle in a tight spot. While they promise not to raise taxes and to shrink government, the leading Republican contenders for the 2012 presidential nomination cite the recent report from the nonpartisan Tax Policy Center that 46 % of American households won’t pay federal income taxes in 2011 to argue that more Americans should help pay for government programs. ...
“It’s wrong to rail on the 46% of people who don't pay income tax,” said Paul Caron, a tax professor at the University of Cincinnati College of Law. “A fairer analysis takes into account all taxes paid—and by this measure, everyone has tax skin in the game,” he said.