More Debits & Credits Posts

Nearly Half of Households Pay No Income Taxes

October 5, 2009

About 47 percent of households, approximately 71 million, will not be paying any income taxes this year, according to the Tax Policy Center, placing a greater burden on those who do.

A study by the foundation was cited in a story last weekend on CNN Money. It’s a bit difficult to see exactly where the figures come from when one actually checks out the most recent study on the subject on the Tax Policy Center site. The income distribution there is divided into “quintiles,” and the two lower quintiles are shown as paying negative income taxes, which is attributable to refundable tax credits such as the earned income and child tax credits.

Assuming the figures cited by CNN are correct, though, that could pose problems down the road as the federal deficit grows and the administration tries to make good on its pledge not to raise taxes on the middle class. That claim has already been called into question as the various flavors of the health care reform bill circulating through Congress contain a number of new “fees” and penalties that could easily hit those making less than $250,000 a year.

As the Bush tax cuts expire, the income tax burden is likely to become ever larger on upper-income taxpayers. That may or may not be fair, depending on your perspective. But if the prevailing trend continues and taxes fall on an ever smaller percentage of the population, the ability to ever close the government’s ballooning budget deficit is going to be in doubt. Eventually it could mean higher taxes for more people beyond just those in the upper brackets, as we're now seeing in states that actually have to balance their budgets.

Addendum: Roberton Williams of the Tax Policy Center sent me the links to the research that formed the basis of the CNN article. One is an article he wrote for Tax Analysts' Tax Notes, and the other is a table from the Tax Policy Center's own Web site.

Comments (3)
Let's consider a significant part of the reason. Low pay for a large part of the population.

When a CEO makes 20 million a year and pays taxes, he is considered ONE payer. When 99 of his employees make 20 thousand a year, married with 2 children, they have a negative tax attributable to refundable tax credits such as the earned income and child tax credits. Now we have 99 percent paying no tax.

Suppose the CEO ONLY (poor guy) takes a minuscule 15 million a year, and pays these same employees 70 thousand a year, whoops, we now have 100 percent taxpayers.

Therein lies the problem. And now with further downsizing, and the unemployed only able to get low paying retail jobs, we can expect the taxpaying percent to diminish even more.

It's simple arithmetic, and at the third grade level. Removing political agendas, only a fool cannot see what is happening before their very eyes.
Posted by | Tuesday, October 06 2009 at 9:44PM ET
Wow, I do wonder how they cam to that conclusion. I personally think that pushing the majority of the tax burden onto the smaller sized upper class is unfair. I thought that during the campaign or increasing their taxes because "they can afford it." When the deficit hit unrepairable highs, what will happen then? How will that be fair to the nation as a whole?
Posted by vbpoutsourcing | Tuesday, October 06 2009 at 3:18PM ET
And this surprises you why? This has been a growing problem for many years now. And I can't believe the tone of this article, which seems to be trying to ignore reality just to try not to admit that the administration is lying to us about 'no new taxes on the middle class'.
Posted by K C J | Tuesday, October 06 2009 at 10:03AM ET
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