WASHINGTON (AP) — Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it’s simply somebody else’s problem.
About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.
Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it’s still almost always better to file: That’s the only way to get a refund of all the income taxes withheld by employers.
In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.
Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.
The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.
“We have 50 percent of people who are getting something for nothing,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.
The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.
That helps explain the country’s aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.
“It’s not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes,” Stretch said.
The federal income tax is the government’s largest source of revenue, raising more than $900 billion — or a little less than half of all government receipts — in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don’t pay it, mainly lower-income families.
The number of households that don’t pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.
In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.
In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.
Obama’s Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.
There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.
“All these things are ways the government says, if you do this, we’ll reduce your tax bill by some amount,” said Roberton Williams, a senior fellow at the Tax Policy Center.
The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.
Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it’s time to pay up. The nation’s wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.
But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.
Here’s how they did it, according to Deloitte Tax:
The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.
With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.
The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.
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On the Net:
Internal Revenue Service: www.irs.gov
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I think quoting the Heritage Foundation does you a discredit. This makes me thing the The Tax Policy Center has a similar agenda though i admit i could be wrong. Again when you quote a notorious out fit like the Heritage Foundation [ that is not an unbiased academic group] but maybe not known to your readers as being more than 95% Republican , you are showing your ‘article’ has a hidden agenda. And you dont identify this piece as opinion another ‘shame shame ‘ on you.
The poornes of this peice/article goes along and starts to talk about Bush Admin policy and then the next paragraph continues without dileniating what time period or admin. the author was speaking of . However I am gratefull for you ‘showing your colors’ when you published the piece. This has convinced me to accelerate my withdrawl of my money from you shrinking interest Internet MM account. I suppose you dont still have any of that nasty Fed money anymore, and that hasnt influenced your the decrease of this product.?
gary t.
boise , id
Gary, obviously your one of the 47%.
“unbiased academic group” is an oxymoron. Academia is 95% liberal. You sir, are exhibiting your lack of grasp of the facts. Who cares if the Heritage Foundation quoted the statistic that 47% are getting a free ride? The fact is still, 47% are getting a free ride. They should pay “their fare share” as the libs are so fond of saying.
Gary in ID:
Facts are facts. And “bs” is better left for people who grow mushrooms. I for one, thank God, that we have an organization such as the Heritage Foundation. I just went to their website to see what might be so offensive to you? LOL – I like’d what I saw so much, I just JOINED them for $25 per year!!! They promote the fair and co-equal rule of law for everyone. They defend the individual right to make and enforce a contract. They are against corruption in government and they believe that every American citizen is a full and coequal citizen as a part of the joint tenancy in the sovereignty. They don’t believe in pitting one group of citizens against another group of citizens just to see which one side will be forced by the gov’t to pay for both sides. I would encourage you, sir. That you might want to become a more diverse reader and try to become a self taught critical thinker. If you did, I believe you might want to also join. And become a member of the Heritage Foundation too!! Either way, you are free to choose for yourself without big governments help either way. Which is another rock solid fundamental aspect of liberty that the Heritage Foundation fights to promote as well.
The article points out some great facts. Gary seems to be another one of these flaming liberals who believes it is a GOOD THING that 50% of americans get a free ride when it comes to federal income tax. Hey, we all understand rich people have alot of money…..no surprises there. But every citizen of america should be personally “in the game”, and not promoted to vote liberal just to get more mandated handouts from those “nasty” rich people.
i don’t pay Fed tax for afew years due to losing almost ALL of my income… BUT the state of PA always makes me pay. they don’t really have ‘wrote offs’ unless u lose $$. so i pay income, sales & property taxes along with various local taxes.
so NOT paying Fed taxes is only 1/2 the story. these articles NEVER seem to mention the State/local angle.
Lets all look at the work that was done here, and not turn on each other. No one gets away with paying no taxes. To even think that is ignoring the fact that taxes are taken out of our pay checks. While it is true that people can get refunds for more then they pay, it does not remove the fact that taxes are paid each paycheck. So everyone pays “thier fair share” some just get thiers back at the end of the fiscal year.
Really Jon? If I pay $5,000 in taxes throughout the year, then get a return of $6,000, you still think I’m paying taxes?
I have a family member who was on welfare all last year, didn’t work a single day, and subsequently didn’t pay a single dollar of taxes. They actually received a “return” for almost the exact amount that I ended up paying. So basically that money went straight from me to them. How is this not a re-distribution of wealth?
What is wrong with reditrbution of wealth thats what legal gambling does and most peopl who gamble can’t afford to lose. When Teachers who educate and deal with all students good bad and otherwise can get paid as much an actor or athlete then we can talk about what is fair. I have worked hard all my life but since my partent couldn’t aford to send me to college and I wasn’t ethnic enough to get finacially aid I don’t make alot of money but who’s going to take care of your kids when they get sick or hurt at school if not nursing assistants like me I’d like to see some of our college professors who send thier kids to school sick live on what I make. Thank you Pres. Obama for helping me out a little and allowing me to get the little tax that I pay in back so i can pay my property taxes.
To Zions Bank – Your article does not offer a balanced point of view on the tax structure. In the guise of educating your customers you are quoting a very biased article. Please keep your political perspective to yourself. We are lobbied enough by special interest groups without having our banks send us articles that are nothing but politics!
I don’t understand why everyone is so upset that Zion’s Bank shared this article. This is an article from a well respected newspaper that clearly states facts:
“47 percent will pay no federal income taxes at all for 2009″ – that means that those 47% are not helping to pay for programs covered by the national income tax –that is FACT.
It also says “The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.” That makes it clear that they are still paying some form of tax, although not the national income tax. So, despite what other posters seem to believe, this article makes it QUITE CLEAR that those paying no federal income tax are paying other taxes which are used to benefit society as a whole.
These articles showed the current situation with the Federal Income Tax from both sides. It benefits some (the struggling family making $50,000) and is unfair to others (the 53% paying for programs that help 100% of the populace). Again, these are facts. Those reacting vehemently to this are seeing bias through their own lens, not that of the writer.
Another point of fact is that no one HAS to pay in income taxes before April 15th. Everyone has the choice to wait – you make it when you fill out the W-4 form. For the past 3 years, my husband and I filled out our W-4 forms as to have no income tax withheld. No need for a “refund” of any sort, we either pay the taxes due or we don’t have a tax liability. As it turns out, we have gotten away with not paying a single cent of FEDERAL INCOME TAX for the three years since we have been married. Are SS and FICA taxes withheld? Yes, as mentioned in this article, but those are not the tax referred to in reference to the 47% not paying.
I am currently one of those that makes a profit from the simple act of filing an income tax return. We pay no money in, but receive a check at the end. Is it right or wrong? I’m not sure. Truth be told, it makes me uncomfortable, but I also know I will be grateful when the tuition and rent and other bills come due and when my little toddler grows out of his clothes again. I also know that once done with school, (and barring major unfortunate events) my husband and I will fall into the tax bracket that will be paying in more than our fair share for the rest of our lives to cover the programs funded by the Federal Income Tax. So, we will “pay back” our debt to society. If only this were always the case.
If the government is no longer allowed to withhold tax people will have to write a big, fat check every quarter. Then maybe they will realize that more than half of income goes to taxes: federal, state, social security, medicare, county, city, gasoline, auto tag, and purchases of almost everything. Now they want a Value Added Tax too?
I truly appreciate this article post.Much thanks again. Cool.
www [dot] irsdebtfaq [dot] com/category/irs-tax-debt/page/3/
Nice article.
yeah ur right! i’m 50 & have all those school taxes forever & i don’t have kids. never collected unemployment either.
The problem I see with a National Sales tax is that people, like myself, who are over 45 with no children will probably pay a much smaller portion of the tax (even though I can well afford to pay more of it) than a younger person or a family. We have already purchased almost all of the tools, household furnishings, appliances, cars, boats, etc that we could ever need. We have travelled the world already and have enough frequent flier miles and hotel credits to do it again – for free! We don’t need or buy as many clothes, shoes, etc as we used to and we are entertained by many of the simple things we didn’t used to have time for – so we spend less on movies, concerts, etc… MOST of what we spend is clearly a CHOICE. So, if the sales tax was high enough, we might CHOOSE not to spend much.
A young family, on the other hand, who might barely be scratching by as it is, would not be able to CHOOSE whether they buy clothes for growing children or diapers and formula for new babies or a car to get to their jobs (or parts or tires to keep it running)…. you get the idea….
As much as I would profit from this, it really doesn’t seem like it would be fair at all.