TaxProf Blog

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

Wednesday, August 31, 2011

Fiscal Times: Who Pays No Taxes – and Why They’re No Pot of Gold

Fiscal Times, Who Pays No Taxes – and Why They’re No Pot of Gold:

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.

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The argument that 46 % of American households won’t pay federal income taxes in 2011 is framed wrong. If taxes were based on consumption and use of resources I bet it would show that higher income brackets pay proportionately less vs what they use. Instead it is framed as absolute dollar amounts which do not tell the whole story.

Posted by: John Williams | Aug 31, 2011 12:38:22 PM

I prefer to think of it a ponzi scheme - but the government refers to what comes out of my compensation and goes into the "social security trust fund" as a "contribution".

Posted by: Paul Parker | Aug 31, 2011 12:46:49 PM

Wow, 46% don't pay income tax really? No wonder our country is in debts. This number is scary and Obama wants to give more to them and tax the rich? I am no rich person, but how much can you squeeze out from the rich when they only represent in a small ratio.

Posted by: filing sales tax | Aug 31, 2011 4:22:18 PM

It isn't a "pot of gold" problem.
It is a "free rider" or a "moocher" problem.

Posted by: momo | Aug 31, 2011 5:06:23 PM

I don't agree with you, Paul, that all taxes are created equal. Income taxes fund government operations and debt service, which benefits all. Payroll taxes for social security and medicare accrue benefits to the individual payers. To have "skin in the game" and not just for yourself, pay income taxes.

Posted by: Woody | Aug 31, 2011 7:03:19 PM

Please comment on the article not the weirdos who respond to it. Don't waste our time on tangents.

Posted by: DZ | Sep 1, 2011 5:50:20 AM

I echo Woody's comment on payroll taxes and Medicare, which are already re-distributive and will become purely confiscatory (retroactively, to boot) once means testing is enacted. Moreover, earning income is one of the very few activities we can not avoid doing forever, it is the most visible one, and it is the first thing those unaffected by income taxes seek to tax further if they have no skin in the game. The real pot of gold here is not finding new money among the lesser (or even just, less-visibly) taxed majorities. It is to keep them from continuing to demand entitlements we can not afford.

Posted by: MG | Sep 1, 2011 6:11:20 AM

It is a "pot of gold" problem.
and It is a "free rider" or a "moocher" problem.

The moocher class have taken advantage of the middle class pot of gold to such a degree that the middle class can no longer afford to pay them and demand has collapsed.

Posted by: John Williams | Sep 1, 2011 6:12:41 AM

I would bet that the kids of the 46% of people who pay no taxes end up filling more than 46% of our military slots. Just a hunch. And that pays to protect a lot of property held by the other 54%.

Posted by: Kipper | Sep 1, 2011 10:31:28 AM