Is This Right? 60 Million American Adults Don't Pay Taxes?

Here's a Yahoo piece on how the Democrats in Congress are raising taxes, where the taxes are hitting, who's paying them, etc. This is not something I want to comment on (I take enough heat for writing about money and religion -- I don't need to add politics to the list!), but there is one sentence in the piece that stood out to me:

Today, some 60 million adults either pay no taxes at all or don't have to file.

According to Wikipedia, there are 219 million Americans aged 20 or more. Therefore, 27% of the population pays no taxes (we're talking income tax here, I'm sure -- it doesn't say but I'm not sure how people can avoid sales taxes). One in four people pay nothing. That seems like a lot to me.

Sure, you have your college students on one end and elderly retirees on the other who are part of that 60 million. Those two alone will take a chunk out of the non-payers. And yet we still have a pretty large segment that pays nada for the privileges we all enjoy.

Think about it this way. You go to the grocery store and see maybe 100 people while there. 27 of them (on average) are not paying income taxes. Or you go to church and see a few hundred people. A hundred or so pay nothing. Or you attend a baseball game with 50,000 people at the stadium. Over 10,000 of them pay nothing.

Wow.

Comments

[Jeff]

I think you might be forgetting about married couples who file separately. If one of the two stays home and doesn't make income, then that person would not have to pay income tax or even file.

[Matt]

An column with more about this:
http://www.gmu.edu/departments/economics/wew/articles/04/tax.html

[JM]

Wow, this 'article' reads like a bitter conservative email forward. Of course its 'the Democrats' that are solely responsible for raising taxes, wanting to raise taxes, giving MY taxes to welfare queens...err...excuse me...the 'entitlement' crowd, eating babies, etc.

also note that absolutely no good what-so-ever can come from raising taxes. that would be completely im-fricking-possible.

Actually, I'm surprised the author uses the word Democrats instead of 'Those damn Liberals'.

OH NOES! Teh democrats gonn git my tax money and give it to lazy people who don't work hard like I do cuz they noes that they can be lazy cause teh gubment will steal my money and give it to them anyway so they can sit around all day snorting pot and not working hard like I do!!1!one!!

[Adam]

I think what it means is that, people are filing their income taxes and their deductions are more then their taxes paid. there's a lot of people out there making next to nothing with 3+ kids getting all kinds of deductions for their children.

[Chris]

I'm pretty sure my property taxes alone are making up for it.

[FMF]

JM --

Not sure what part of your comment is sarcastic and what part is serious, but my general feeling is that the government is about the least efficient place to pay our tax dollars. An extra $1 given to them seems to yield an extra $1.20 in spending with $0.60 of that wasted on Congress's pork projects.

[Bronco]

JM-- what is wrong with you?

[LiberalsSuc]

Simple tax solution:

Get rid of income tax (and property tax - BS!) and increase sales tax to 25-30%. The more people buy, the more they get taxed. People making min. wage shouldn't be buying expensive stuff like Gucci purses (even though they do) and that way, they won't be taxed as much. It may hurt the economy for the first year or so when people see the large costs to buy something, but Americans don't care - they have credit cards. The rich don't care either, they want to look high class with their 200 jeans and beamer.

or

People with incomes under 15k or 20k pay no taxes. People over that pay a straight 20%, no deductions or any need for a tax advisor or software. If you make 1mil/year, you're taxed 200k. You make 100k, you're taxed 20k a year. Seems fair to me.

[Wow]

Wow - I think Jim's a big liberal.... and you know how Michael Savage says Liberalism is a mental disorder.

[JM]

@FMF, mostly being sarcastic. 85-90% at least.

[JM]

@Bronco, Nothing.

[Matt]

Taxes in and of themselves are neither the problem nor the solution.

The real problem is government spending. I work for a government contractor, and I can tell you from firsthand experience that government can't help but use resources stupidly. People deciding how to use other people's money will never do as good of a job as people deciding how to use their own money.

Now, eliminating the income tax in favor of a national sales tax would probably eliminate some waste associated with collection and compliance, but as long as the government decides how to allocate upwards of 40% of our resources, that staggering waste will dwarf whatever changes we make in the tax system.

[JM]

@Wow, Who's more foolish? The fool, or he who follows Michael Savage? The latter, I think.

[Compounding]

Actually, that number seems quite low to me. I was under the impression that the lower 50% of income earners paid nearly no income taxes.

Anyhow, I am getting a little weary over this "punish" the oil companies BS. The article hits the nail on the head, but a little lopsided. They are not punishing the oil companies... they are punishing the stock holders of oil companies. Who happens to be stock holders of oil companies? Average people through their 401(k)s and IRAs, as well as philanthropic endowments (this means scholarships and charitable organizations).

It is not the job of the government to redistribute wealth. And as inflation occurs, it would stand to reason that people with zero money would still have zero money, but people that kept some would have more simply based on inflation. Try taking Econ 101 politicians.

[plonkee]

Firstly, being liberal is the only way to be. Full stop.

Secondly, if you think carefully, its no great surprise that there are many people in the US that wind up paying no tax. Some of them are pensioners, some are students, some are non-working married spouses, some people plain don't earn that much - the US is not renowned for income equality.

And of course the government (regardless of state or even country) is not the most efficient way of spending tax dollars. It isn't about efficiency, it is about furthering the aims of the state/country in question which usually means promoting social equality, making sure we all don't kill each other and providing 'peacekeeping' forces. Some things are beyond efficiency.

[garyatk]

First of all I would just like to say that there was no income tax until WW1. Then it was only to be temporary. Whatever did we do to survive before WW1 and the rule of Remocrats and Depublicans??? Might I also add that thier is no law that says we must pay an income tax. It is illegal. But we all pay because we have a corrupt government and they control the army and the jails. So much for the "Land of the free"!

I love my country, but I fear my government!

[PaulD]

A married couple with four children would not have to pay income tax on income up to a reasonably high level and could often receive a transfer payment from the feds at tax time. Consider a household income of say $60,000 a year. Itemized deductions of 15,000 (e.g. mortgage, state and local income and property taxes, charitable giving); Personal exemptions (6*$3,2000=$19,2000). This would yield a taxable income of 60,000-15,0000-19,200=25,800. Tax before credit would be about 3,000 for a married couple filing jointly. The couple could claim $4,000 in child tax credit and would not only not pay any taxes, but would receive about $1,000 back from the federal government. And I do mean they would receive money back. The child tax credit is set up so that any unused portion is refunded even when no federal income tax has been withheld from the paycheck.

[Lord]

There are many ways to not face a tax liability. Consider the poor, disabled, those with catastrophic losses, rich spawn and trust fund babies, domestic partners, the 'kept', criminals, to name a few. Workforce participation is about 66% leaving a third of working age dependent on incomes of others or on assets of their own or others.

[Minimum Wage]

PaulD hit on something I was going to bring up. While liberals with Bush Derangement Syndrome have been complaining about Tax Cuts for the Rich, they missed the bigger picture of Tax Cuts for the Parents. For example, the increased Child Tax Credit and Earned Income Tax Credit.

The adults not paying income taxes mostly fit into a handful of groups: students, seniors with low retirement incomes, parents with low and moderate incomes (esp those who own homes), and nonworkers.

A childless adult working full time for minimum wage pays income taxes, and may (if over 25 and younger than 65) or may not qualify for a small EITC (less than $100).

p.s. to Chris - most states (hi FMF - doncha just love that freebie nonhomestead tax?) have higher property tax rates on rental property than on owner-occupied primary residences, so ironically, the people not paying income taxes often are bearing an awful lot of property taxes.

[Teri]

I am not surprised. I make $75k or so and I am in the 15% tax bracket. When I went on maternity leave for 16 weeks our tax liability was $0.

2 child tax credits and some insane California mortgage interest and property tax deduction is all it takes. We actually have pretty modest payments for the area, but the first $50k I make is tax free. Mortgage interest is $12k, property taxes are $4k. Oh plus our medical expenses - we pay plenty on that too - tax deductible. State income taxes could be huge in Cal but we don't pay much in state income taxes.

On the flip side, if I made $20k more (or my husband got a job) we would be in AMT. The tax system is insane. Are we paying our fair share at 15%? Not really. Is AMT the solution? Um no... AMT was a tax made for the extremely wealthy - not the middle class trying to survive in California. In the meantime my husband doesn't work because we don't see the point of a small second wage to be slammed by AMT and childcare. It would make no sense... People around here that our impressed that we only rely on 1 income don't realize the reason we can swing it is the low federal income tax bill. The Bush cuts just happened to hit around when we had our first child and has really helped our ability financially to drop to 1 income.

I expect we will get slammed by taxes in the future to make up for all these years we have been paying pretty much squat.

[Jim]

I'm an E-6 in the military, father of two, getting four deductions and saver's tax credit. I don't pay federal income tax, yet. Sarcasm fixing to start: I'm working on it though. I want to work hard and succeed so my taxes can bail out sub-prime mortgage buyers.

[Russell]

Hey, there is something called earned income credit. What is that?? It is just another form of welfare that is paid by the federal government. There are many people who get tax refunds and never pay in one red cent. If we are going to have welfare, call it that. Why disguise it with something called earned income credit??

[Minimum Wage]

The working poor make it possible for you to enjoy comforts you take for granted, and at bargain prices. Without the working poor, you would have fewer choices and they would cost considerably more.

Considering the low rewards they enjoy for the toil they endure, they are the biggest chumps in America and you should be thankful they toil for your benefit.

The earned income tax credit - which millions of low-wage workers don't even get - is a small price to pay for the benefits which flow from the work it encourages.

[Skott]

No one is ever paid what they deserve for the work they do, because it's irrelevant. You're paid as little as possible--the minimum required to keep you or replace you. Is that going to change significantly anytime soon? No.

[Minimum Wage]

Right, it's not going to change, so why do people who enjoy a long list of tax breaks complain about the earned income tax credit? Or do these people really think the working poor are paid what they are worth?

[Matt]

The working poor are paid what they're worth.

If some entrepeneur could figure out a way to lure away low-wage workers from another employer by paying them a bit more and still make a profit, they would.

It's true that employers will pay as little as they can, but that amount is determined by what competing employers will pay and what competing workers will accept.

It's sad that the working poor's labor is worth so little, but as long as no one is coerced to hire (which would artifically inflate wages) or coerced to work (i.e. enslaved, which would artificially depress wages), the wage reflects the true value of the labor.

That said, the EITC is probably one of the most efficient ways to help the poor. It's a lot better than--for instance--the minumum wage or food stamps or subsidized housing because it encourages work without causing too many other distortions.

[Mike]

Ahem.

Letting President Bush's tax cuts expire. This will raise tax rates by 10% on the wealthiest Americans and a whopping 50% on those in the bottom brackets. It also will jack up rates on personal capital gains to 20% from the current 15%.

The only reason they made it all the way through Congress back in 2001/2002 is by including the sunset provision - some fiscal conservatives couldn't stomach the full bill if it didn't expire. The Congress and President that passed the tax cut also voted to raise the taxes again at the same time. It ain't them damn liburals - it was the Republican House, Senate, and President for everything that's happening.

As to whether the Dems should fix what the Repubs did is a different issue. Frankly, I don't think they should because it wasn't a tax cut, it was a tax deferment. It's only a tax cut if they spend less while reducing the gov't income. Because they kept spending more while cutting taxes, the Republican House, Senate, and President just punted the ball down the field. Gutless wimps.

End rant.

Mike

[8]

The spending is the problem. A sales tax to replace all income, payroll, and capital gains taxes would be best because it would give people the incentive to work, save and invest, but as long as government keeps spending the money there's no solution. I read a study in college that showed that all the governments in the world spent about 10-15% of GDP on defense, roads, public safety, and law. Right now we spend more than 35% of GDP on all levels of government. I've seen some estimates that the U.S. economy would grow by almost 7% per year if taxes were cut by 25% (to about 27% of GDP) , but to cut total taxes to 10-15% of GDP, we'd have to cut taxes by more than 65%.

There are a lot of idiots who think they paid no taxes when they get a tax refund, but they forget the gas tax, sales taxes, property taxes, hospitality taxes, car taxes, fees, etc. It's still bad that a lot of people don't pay income tax though, because they will obviously vote to increase the tax they don't pay rather than the ones they do pay. The sytem will become even more unjust, and people with mobility will leave America or never come in the first place. We are in a global economy and the countries that treat entrepreneurs and business as sponges to be squeezed to pay for welfare will soon find their competitiveness decline. Kind of like the U.S. today. India, China, Russia, Eastern Europe and even the socialist EU countries are have cut or are cutting taxes big time. The U.S. is falling behind.

[Matt]

8, you hit the nail right on the head. At the end of the day, almost any tax system would seem like little burden if the government only spent 10% of GDP.

I, for one, would like to see a per-capita tax. Take the total annual spending of the US government, divide it by the number of non-disabled working-age adults, and send those people a bill for their share. It's perfectly efficient, because no wealth would be destroyed in the process of trying to avoid it. Also, disenfranchise anyone who doesn't pay their share of the taxes so that the entire electorate clamors for less and less spending each year.

[emily]

Why does that bother you? Do you know why those people don't pay taxes? You don't pay taxes on your first 10K a year, does that bother you?

[Holly]

@FMF: Not sure if you know this, but some of your readers self-identify as liberal (gasp!). Or should I say, former readers, of which I am now one.

[Gavagirl]

College students and old folks, eh? Have you thought about all those other people who lack the basic capacity for ordered thinking that it would take for them to even go to college? You're actually going to get upset that some grocery store clerk raking in under $20,000 a year, who barely has the god-given reasoning skills to operate a cash register effectively, isn't paying any taxes?

Not everyone in the world has the ability to go to college and then get an MBA and build up a life like you've got FMF. I suggest you go volunteer at an adult literacy program or something and get a little perspective on exactly what kind of lottery you managed to win when you emerged from the particular womb that created you.

Yes, I tend to identify as liberal, but no, I'm not so much offended as I am taken aback at the lack of awareness you're showing here.

[FMF]

Holly --

No! I am SHOCKED!!!!! ;-)

Gavagirl --

Read the post. My surprise was at the PERCENT of people not paying ANY taxes. Seems high to me. Not you?

[Kiran]

You know you are conveniently ignoring the fact that anyone who works pays 7.65% in social security and Medicare taxes (plus their employers are throwing in an equal amount).

And before you say 'that means they only contribute to those programs and not to any of the other things government does'. Remember that social security taxes have ended up paying for part of general government expenditures for the past 25 years!

Stop pretending that SS and Medicare aren't taxes.

[Gavagirl]

Gavagirl --

Read the post. My surprise was at the PERCENT of people not paying ANY taxes. Seems high to me. Not you?

No. Not at all. If you look at the bell curve for IQ, education, and other factors relevant to earning capacity, it actually makes quite a bit of sense.

[Mark]

Well, I feel I pay more than my fair share of taxes...roughly $16.5K federal and $6K state (California) on $130K income because we refused to buy a house at bubble prices and have no kids, no deductions. So stop complaining!

[FMF]

Kiran --

GREAT point!

[Jeff]

We need to remember something as far as Social Security and Medicare is concerned. Number one, these are more "contributions" than "taxes". They support entitlement programs based on a "pay as you go" formula. Which means we are paying for those who are retiring today. Now, one of the previous poster rightly pointed out, the Social Security trust fund has paid for government spending for the last 25 years. Unfortunately, what people don't understand is that this Fund is what Bill Clinton used to "Balance the Budget" - fleecing the fund to the tune of hundreds of billions of dollars that will take years to repay. He was able to take this money because that's where the "real" surplus resided. We were taking in more money (in large part from the dot.com boom, which he had no part in creating) than we were giving in out in Social Security benefits. However, when the majority of the baby boomers retire, get ready for that FICA number to get alot higher. All so Bill Clinton could tell the american people that he balanced the budget. Great president, huh. Criminal.