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Nearly Half of Households Pay No Income Taxes

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.

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