Paul L. Caron

Saturday, April 17, 2010

More on the 47% Who Pay No Income Tax

Following up on my post, New York Times, Yes, 47% of Households Owe No Taxes; Look Closer:

Neil H. Buchanan (George Washington), When People Pay no Federal Income Taxes:

Yesterday was "tax day," the official filing deadline for federal income taxes in the United States. (Actually, anyone can receive an automatic six-month extension to file, if they submit a simple form and pay a reasonable estimate of their tax liability. But no matter.) The media's Pavlovian coverage of anti-tax protests focused on this year's big talking point from right-wing politicians and pundits: the estimate (which has been available since last June yet managed to emerge just in time for April 15 punditry) that roughly 47% of all taxpayers will have zero net federal income tax liability for 2009. Here, I will run through some of the obvious ways that that number is being used to dishonest effect. Most of these points, happily, have already been made in prominent news outlets; but the dishonest claims continue unabated. I will then address a more fundamental question: Would it really be bad if large numbers of people paid no taxes at all?

Howard Gleckman (Tax Policy Center), About Those 47 Percent Who Pay “No Taxes":

Last June, my colleague Bob Williams posted a TaxVox article that reported 47 percent of American households paid no federal income tax in 2009. Bob was exactly right, but rarely has a bit of data been so misunderstood, or so misused.

Let me explain—repeat actually—what this means: About half of taxpayers paid no federal income tax last year. It does not mean they paid no tax at all. Many shelled out  Social Security and Medicare payroll taxes. In fact, only 14 percent of Americans didn’t pay either income or payroll taxes. Some paid property taxes and, it is fair to say, just about all of them paid sales taxes of one kind or another. So to say they pay no taxes is flat wrong.

However, this class warfare-like rhetoric plays to a perception that the income tax is a chump tax: Only hard-working folks like us pay it. The welfare queens don’t. The super-rich don’t. It is a powerful emotional argument. It is also flat wrong.

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Yes, everyone pays something in tax to various levels of government. But some 47% of people get to pretend that someone else foots the bill for extravagant public spending. They think the soap costs a buck -- but they have no idea what portion of that price is the income tax paid by the manufacturer, the shipper, and the retailer. They get to pretend that it's someone else paying that income tax. They have no idea that the soap could (and should) cost under a buck. It's easy to fix: eliminate corporate income tax -- and stand back for massive job creation.

Posted by: Galt | Apr 20, 2010 5:04:22 AM

When I was reading this post and saw the 47% pay no tax I was floored and had to read on. Then, as I read your comments I realized that even if you don't pay federal tax that we all pay taxes on every single thing we do in this country. If it is buying a bar of soap of going fishing, we are getting taxed... and heavily.

Posted by: Michael | Apr 19, 2010 12:25:13 PM

Property and sales taxes pay for local/state benefits and services enjoyed or accessible by the payor. SS and FICA are ostensibly for the ultimate benefit (in an ideal economic world) of the payor a/k/a contributor himself. Federal income taxes pay for those services that our political representatives have judged necessary or desirable (stop laughing) for the COMMON welfare at the national level. Common means everyone. There should be some minimum federal income tax payment due annually, no matter how small it might be. Every earner of income, however that may be defined, should feel some of the pain and burden of federal expenses. No exceptions. No exemptions. No zero income tax liability. No refundable tax credits.

Posted by: ColoComment | Apr 19, 2010 10:29:06 AM

Very slippery the way they define FICA withholding and the "social insurance" programs they fund. When they want to shield Social Security and Medicare from being denigrated as just another welfare program they go to great lengths to distinguish an employee's, er, "contributions" from normal taxes. Of course, when they want extra play-money they start imposing needs-tests and raising the caps (without raising the bennies).

They need to be called out every time they play this shell game. As long as SS is on autopilot-spending and its revenue grab made thru a separate levy, then I think it's perfectly fine to loudly lament the fact that so many people don't pay income tax. Otherwise, just call SS what it is: welfare. Eliminate FICA and pay for it all from the general budget.

And to have to drag in property taxes and sales taxes really has to be a desperation play -- those have nothing to do with the runaway federal spending that the "everyone should shoulder some burden" crowd is complaining about.

Posted by: Galt | Apr 18, 2010 11:36:12 AM

The biggest problem with exempting half the people from paying federal income taxes is that they now vote to have even more of those taxes passed on to the minority of voters and taxpayers. Now, you're also seeing the same move with FICA and Medicare taxes.

It's set up as class warfare and wealth envy and is dangerous to our nation's longevity. A democracy in which half the people have learned to use the force of government to take from the other half is the beginning of the end.

My family lived in a city in which renters and housing project voters finally outnumbered homeowners, and those renters and housing project voters regularly voted property tax increases on the homeowners for every project that came up.

There were two results. (1) rents went up, but those voters were too stupid to anticipate that, and (2) businesses and homeowners moved to the suburbs, and the city lost half of its population and much of its tax base.

Here's an example on a national scale of such "intellect" about spreading the wealth: Obama Is Going To Pay For My Gas And Mortgage!!!. Maybe she should thank the FEDERAL taxpayers, too.

Posted by: Woody | Apr 17, 2010 1:50:24 PM