Do I have to Pay Taxes and How Nearly 50% of American Households Pay No Federal Taxes

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taxes federal no payTo answer the first part of the question. The answer is yes you have to pay taxes. In fact despite all the conspiracy theories and constant political threats to shut down the IRS because, taxes are the law of the land. It is known as the Internal Revenue Tax Code, which is Title 26 of the United States Code. But there are in fact a number of legal ways to avoid paying taxes, which come down to reducing your taxable income. Which can be very different from your earned income.

Just when I thought I have seen most statistics, CNN brings us estimates by the nonpartisan Tax Policy Center, that In 2009, roughly 47% of households, or 71 million, will not owe any federal income taxes. What’s more is that, some of these non-tax payers will get additional money from the government because they qualify for refundable tax breaks and credits under President Obama’s economic stimulus program.

There are some clarifications in the article since people pay more than just federal income taxes. If you factor in payroll taxes, which support Social Security and Medicare, the percent of households with a net liability of zero or less is estimated to be 24% this year. Still that is a big number and likely to rise as unemployment and the number of retired workers increase.

The key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressively can be dialed up or down.

President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less. One of Obama’s budget proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts. As a result, under Obama’s budget, he would keep the ranks of the non-payers higher than they would otherwise be.

I can understand that taxing the poor is not the best idea for a sustainable economy, but the fact that we have a growing proportion of people who won’t pay taxes is concerning from when I think of the longer term impacts (like the availability of Medicare and Social Security). Further, it will make be think twice before supporting all the government sponsored stimulus programs which future generations and I will have to pay for with higher taxes.

What are your thoughts on this? Is the American tax system fair in taxing the rich or does it provide too much leeway?

Related
~ America’s Income and Wealth Inequality
~ Updates & Taxes on the 2009-2010 Economic Stimulus Credits and Payments
~ Credit Card Reform via the 2009 Cardholders’ Bill of Rights
~ Job, Home and Stimulus Tax Breaks and Traps in Difficult Financial Times
~ Can’t afford to pay my taxes! What happens if I file late and can I get an extension

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9 Comments on "Do I have to Pay Taxes and How Nearly 50% of American Households Pay No Federal Taxes"


[…] Romney’s figure of 47 percent comes from the Tax Policy Center, which found that 46.4 percent of households paid no federal income tax. But this hides the fact […]

[…] Income by Income Group, also shows that the lowest quintle of tax payers effectively saw their federal tax contribution percentage drop to nearly zero. So its questionable that further tax cuts on the lowest income earners will make a difference. […]

a c
Wednesday 11:54 am

first of all, tpc is not non-partisan. the portion of the tax code that bothers me most is the so-called earned income credit. this is the part where some people pay no tax whatsoever, and yet receive a “refund”. however, this is not half of the population as is incited by this column. it is actually 30% of the 50% indicated here. while it is definitely dreadful, it is not as dividing as the tpc would want it to be.

[…] now, nearly half of taxpayers don’t pay income taxes, but they do pay their share of payroll taxes, which amounts to 7.65 percent of wage income (though […]

2011-2012 Alternative Minimum Tax (AMT) and Exemption Amounts | Saving to Inve$t
Monday 10:11 pm

[…] = 'wpp-257'; var addthis_config = {"data_track_clickback":true};Everybody should pay their fair share of taxes, right? It would be difficult to find somebody who doesn’t believe that but in reality it’s not […]

[…] education tax credits.  In addition, the AOTC is partially refundable, meaning that families with no federal income tax liability can receive the credit. These families are expected to receive more than $4 billion in […]

[…] $250,000 a year. By contrast, the Tax Policy Center found in April that 47 percent of Americans pay no income tax, largely the result of tax credits enacted under Bush and Obama. Those Americans do pay Social […]

Willie
Tuesday 6:33 am
First taxes should a a flat percentage reguardless of the amount, EVERYONE SHOULD PAY THE SAME PERCENTAGE. Tax deductions shouldn’t be regulated by income either, just capped at a dollar amount or again a percentage. Here are some more interesting numbers to go with those according to the U.S. Census Bureau 54.87% of Americans make $50,000 a year or less. 84.7% make less than $100,000. So only 15.3% of Americans make over $100,000 and of those 6.7% don’t pay federal income taxes, that is 759,000 wealthy individuals not paying taxes out of 4,960,784 total individuals. On the other hand of the 91,366,906 individuals in the 50k or less bracket 21,928,057 have no income at all leaving 69,438,848 left to pay taxes and 41,571,943 don’t that is 59.8% that is a huge amount and is unacceptable and that is just in the under 50k mark and omits the Zero income individuals.… Read more »
andys2i
Tuesday 10:39 am

A very detailed response and some statements that do make sense.

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