A new analysis by Congress’s nonpartisan Joint Committee on Taxation found that 51 percent of U.S. households did not pay any federal income tax in 2009.
Orrin Hatch
The report was unveiled during a hearing Tuesday by the Senate Finance Committee on the distribution of tax benefits and burdens in the Tax Code.
“American taxpayers are skeptical that the answer to our fiscal problems is for them to sacrifice more, when almost half of all households are not paying any income taxes,” said Sen. Orrin Hatch, R-Utah, the ranking Republican member on the committee. “Those who promote higher income tax rates in the name of equality and deficit reduction need to come clean about what this means. With the income tax base so narrow, meaningful reductions in our deficits would require far more than taxes on the rich. Those tax increases would squarely hit the middle class, which the President and others have said is off limits. In short, the quest for social equality results in fewer resources and worse outcomes for the nation as a whole and the poor in particular.”
According to the JCT analysis, 51 percent of all households, which includes filers and non-filers, had either zero or negative income tax liability for tax year 2009. The committee also found that 30 percent of tax units actually made money off the income tax system for the 2009 tax year.
“We are in a situation where people are talking about increasing taxes on higher income people because, supposedly, they can afford it—and probably they can afford it,” said Sen. Chuck Grassley, R-Iowa. “But I get sick and tired of the demagoguery that goes on in Washington of taxing higher income people. According to the Joint Committee on Taxation’s latest analysis, 49 percent of households are paying 100 percent of income taxes coming into the federal government, while 51 percent of the people in this country don't pay any income tax whatsoever. How high do taxes have to go, generally, to satisfy the appetite of the people in this Congress to spend money? And particularly, how high do marginal tax rates have to go to satisfy those clamoring for higher taxes that the wealthiest in this country are paying enough money?”
Senate Finance Committee Chairman Max Baucus, D-Mont., noted that Americans want to see a fairer and more equitable the tax system. He pointed to a recent poll in the Associated Press that found most taxpayers said they believe the taxes they currently pay are fair, but that most believe that the wealthy don’t pay their fair share.
“The perception is that tax loopholes and benefits exist that average Americans don’t know about and can’t access,” said Baucus. “The wealthy folks can hire attorneys and accountants to find every credit and deduction, while average Americans can’t afford that time and that expertise. One factor behind this perception may be the way changes to the code have affected people differently. Since 1986, Congress has made over 15,000 changes to the Tax Code. In most cases, these changes haven’t benefited all taxpayers.”
According to IRS data, he noted, the 400 taxpayers with the highest adjusted gross incomes had an effective tax rate of just below 17 percent for the 2007 tax year. The average income for those taxpayers was $345 million per household. But the effective tax rate of people earning between $1 million and $1.5 million was 24 percent.
“High-end income concentration has greatly increased since the passage of the Tax Reform Act of 1986,” said New York University Law School professor Daniel N. Shaviro in his prepared testimony before the committee. “If one considers this trend undesirable, it could influence one’s views about tax rates at the high end of the income distribution.”
11 Comments
This is just another great example of how discerning our Founding Fathers were. Hamilton, Burr, Madison, and all the others who worked so hard to create the greatest economic system in the world, are now being taken as ancient, outdated cads, when in fact their system worked fine as recently as the Eisenhower administration. They had what many people have never heard of, or weren't paying attention during history and social studies classes. It's called a graduated level of income tax. It's still law, but with all the changes added so guess who can benefit, it's no longer 90% for corporations and the richest individuals. I suppose they never imagined how greedy some people can get, while their philosophy was one can make as much as they want, but since it's a country that you're allowed that freedom-you have pay back your share for making so much. They obviously assumed if an individual or corporation made ten million dollars a year, one million would certainly satisfy their needs. Were they naive in their thinking, or was that the civil and moral way to live as an American? I haven't looked up how many individuals or corporations got away without paying a red cent in the Eisenhower days, but we made enough as a country that taxes on the poor and middle class were low enough for them to lead a life with some dignity and a life without want, yet we still had enough to build the suburbs and the national interstate system. Oh well, most of the gluttons today also claim to be Christians, so maybe we'll see how difficult it is to fit a camel through the eye of a needle as Jesus warned us. My thoughts? I don't think most of them truly believe in anything but the wealthier one is, the greater the person.
Posted by: FastWillie | February 23, 2012 11:03 AM
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"The committee also found that 30 percent of tax units actually made money off the income tax system for the 2009 tax year."
I'm not too sure if I care that a bunch of minimum wage people paid no tax. The killer is after EIC, make work pay, child credit, etc. these $15,000 per year people are getting $11,000 of entitlement refunds.
I have not cranked any numbers, but I have a feeling that cutting wealth spreading entitlements would generate more that trying to tax the people. Oh stupid me, I forgot that entitlements get votes.
Posted by: WCSCPA | May 22, 2011 3:30 PM
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It seems that all the analysis & discussion is about who has what & how much...about loopholes...investors, etc. How about a very simple reason why many households did not pay any tax...try no jobs, unemployment ran out so no income, only part-time work which does not allow for any taxes to be paid after exemptions & deductions taken on tax returns.
I wonder how much money was spent on the analysis which doesn't do anything for the economy other than to pay someone who probably doesn't need the money & the result that produces no value.
Posted by: eascpa | May 4, 2011 7:19 PM
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A Democracy cannot survive/function when more than half of its electorate do not contribute to the cost of its existence (tyranny of the masses). Taxsolutionspc's comment above misses reality in some significant ways. While the rich were subject to a 70% tax rate they had so many deductions that many paid no income tax at all (not easily accomplished today) such as full deduction of real estate rental losses against other income, deduction for all interest paid and a multitude of tax shelters. If we go back before President Kennedy, the maximum personal income tax rate was 90%. If we had that today with many States tax rates, the effective rate could be almost 100%. Businesses are fleeing the U.S. to lower tax and cost locations in huge numbers. This is destroying the U.S. economy. The problem with the rich in the U.S. isn't low tax rates; it is business monopolies and political corruption.
Posted by: efhcpa | May 4, 2011 6:31 PM
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taxsolutionspc, I suggest you tell me how we can lower "0". We have the highest corporate tax in the world and we will lose what industry we have left if we raise the tax. We need to eliminate the loop holes and off shore shelters.
Posted by: mel4600 | May 4, 2011 5:36 PM
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Do a little research going back a few years and see what the top tax rates were for the "rich" and the "middle class" and see who has gotten the major tax breaks since then. When I started tax practice, the top tax Federal rate was 70% now it is 35%. The rich have had their taxes cut in half. Have the rest of us? Who does the most investing in stocks and has the most capital gains? They have had their tax on dividends and capital gains capped at 15%, an even bigger break. We can't continue to cut taxes or have a flat tax and continue to provide the services we want and need from government.
When is someone going to get serious about pursuing all the unremitted withholding taxes? Ask the Treasury Inspector General for his report on how many dollars they estimate are uncollected each year just in that area. It will astound you.
Posted by: taxsolutionspc | May 4, 2011 2:39 PM
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This report is meaningless. It omits the proportion of non-filers and does not stratify the results by gross income. Are non-filers largely the very poor? Are zero/negative returns concentrated in, say, the lowest and highest income strata, or are they spread throughout?
How much of these results were fallout from the loss of 8.4 million jobs and trillions of dollars of market value from the financial collapse caused by the fraud, greed, dishonesty, and gross irresponsibility of Orrin Hatch, Congress in general, and three decades of Republican "leadership" that loosed the hyenas of finance on its own people?
Posted by: ccaylor | May 4, 2011 11:02 AM
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The Federal Insurance Contributions Act Tax (social security)is matched by employers (the rich). The insurance paid in provides benefits for retirees, the disabled and children of deceased workers. The benefits paid out vary based on the amount taxed over the worker's years of employment. The benefit is reduced for higher income people as a percentage of the tax paid. Why not have a limit as to how much is paid in per person covered?
Many who want to increase the tax on the rich are soon to point out the social security tax paid by the 51% that pay no federal income tax. It is never mentioned that for those of the 51% that are employed by the rich and corporations have their payroll tax matched by their employer. For 2011 the Employee's share of the tax is 4.2% of taxable wages, for the employers it is still 6.2%
Posted by: drscpa75 | May 4, 2011 9:02 AM
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Hey, Wolfsohn, you ever think about the fact that pure investors don't receive social security since they didn't pay into the system? It's tit for tat! Also, have you ever calculated the return on FICA tax contributions when the benefits begin to be collected? Don't be using the social security tax as a rationale for raising the unconscionable application of the income tax in this country to only half of its population.This approach borders on confiscation. Ever had someone pick your pocket? Or maybe have you had to pay full price to get into an event when 50% of "attendees" get in for free?
Posted by: RISKY B | May 4, 2011 8:39 AM
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When will someone bring back the concept of a VAT (value-added tax)? We have to address expanding the tax base vs. trying to increase tax rates on higher incomes. There is an untapped under ground economy whereby many citzens are paid in cash and under report this income. This cash income is spent somewhere and that is where we can expand the tax base. in addition, higher income citzens spend more, therefore will pay more.
Posted by: wjbrasch | May 4, 2011 8:25 AM
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and dont forget the additional social security tax on top of the workers vs none on investors where the rich basically benefit. citizens who earn $5 million or more dont pay this tax. or the AMT.
Posted by: WOLFSOHN | May 4, 2011 7:47 AM
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