Working Poor Federal Tax Payer
April 13, 2010 1:48 AM   Subscribe

Has someone who is 60 and started work at age 20, having worked minimum wage their entire life, ever actually paid USA federal income tax?

My conservative friend was railing about how his tax dollars were being spent the other day, and I thought "wait a minute, I'm not sure you've ever paid any tax." This person has never made more than a dollar or two over minimum wage, and that was in the late 80s. Otherwise it's been straight minimum wage his entire life, not counting the two or three years he has been on state unemployment.

In Washington we have no state income tax, though this guy has paid (the very regressive) sales tax over the years, and property taxes on a house he owned (which he paid for through a modest inheritance).

There has been social security withholding, of course, though that is not really "tax" in the sense I'm thinking of.

I'm not going to be sharing this with him, I'm just curious.
posted by maxwelton to Work & Money (20 answers total)
Depends on many things. But let's say he worked full time last year. That's $7.25 x 40 hrs/wk x 52 weeks = $15,080. If he's single, subtract the standard deduction ($5700) and standard exemption ($3650), leaving $5730 in taxable income. Federal taxes on that would be $573, which is less than 4% of his total income.
posted by zompist at 2:05 AM on April 13, 2010

Well, I think FICA is a real tax, but that's another discussion

He may not have paid any income tax, assuming that he has filed every year and gotten all of his withholding back (not necessarily a certainty).

However, he has paid taxes constantly and every day probably. Sales tax go to states and cities (and school districts and utility districts and ...) but lower the federal responsibilities. Also there are state and federal taxes on many things he uses, gasoline, tobacco, alcohol. So, yeah, he's paying for things. Unfortunately, he is taking positions that cost him a lot. By being protective of the rich, he's supporting more and more government fees and regressive tax policies.
posted by Some1 at 2:08 AM on April 13, 2010

Also, consider the Earned Income Tax Credit. If he's getting it, he's almost certainly gotten back more in direct payments then he's paid in.
posted by delmoi at 3:17 AM on April 13, 2010

Response by poster: I guess I should have noted my friend has never been married and does not have children.

For as long as I have known him he has used H&R block for his tax preparation (though I'm having trouble figuring out why, as I suspect 1040EZ would be a natural choice...even when he owned a condo, he paid cash and didn't have a mortgage interest deduction).

I'm fairly confident he goes with whatever the standard is for paycheck withholding--he does get a refund every year, so he is paying something in, but given his nature it is 99% certain he would never try to adjust his withholding to match his actual obligation, he'd stick with whatever is standard.

(I understand he does pay taxes--as you note, the most regressive taxes--but he was fuming about national social programs of the sort that I don't think are supported by the money he pays via use fees, property tax, etc.)

I guess I am laboring under the assumption that there is a minimum income under which federal taxes are not required, but I can see I'm probably ill-informed-- or wildly optimistic how high that threshold is set.

Like I said, I'm genuinely curious, and it looks like my idle thought was probably wrong. If he has paid money in, he has every right to rant about how it's spent, however distasteful I find what he rants about.
posted by maxwelton at 3:53 AM on April 13, 2010

there is a minimum income under which federal taxes are not required

There is. I believe for a single childless adult under 65 it would be $9350, which works out to someone working 40 hours year round for a wage of $4.49 - which is way less than minimum wage. Its earnings of about $179/week.
posted by anastasiav at 4:12 AM on April 13, 2010

9350 is the level at which you don't have to file a return. Add in the standard deduction + earned income tax credit and the # is higher. Of course I too am in the "FICA is also a tax camp" and think the "Only 50% of American's pay taxes" meme is utter bullshit.

And yes there are gobs and gobs of people who use a preparer when there is absolutely no reason.

But no your friend has never paid income tax (assuming his inheritance came in a manner that was non taxable income)
posted by JPD at 5:00 AM on April 13, 2010

The Earned Income Tax Credit was enacted in 1975; prior to that, your friend probably paid taxes working full-time at Federal minimum. So I don't think it's truthful to claim that he's "never paid income tax," ever.

Also, he's probably not working Federal minimum, he's probably been working Washington State minimum, which is significantly higher. In 2010 it's $8.55/hr, so for a 2000 hour work year he'd get $17,100. That's above the EITC limit for a single filer with no children ($13,440).

So he doesn't get the EITC and probably ends up paying something in the single-digits, percentwise. If he works for a single employer all year long it's probably covered by withholding and he gets a small refund, but if he works for multiple employers and thus each W-2 is under the mandatory-withholding threshold, then he might have a substantial (to him) tax bill this time of year, which would of course be very painful.

I don't have enough information to compute back throughout his lifetime and see how much he's paid in the past, but I think it's untrue to say that he "never paid income tax." It looks like he's paid this year, unless I am grossly misreading the EITC limits.

Keep in mind too that minimum wages have tended to decrease, in real-dollar terms, over the past few decades. (I.e. minimum wages used to "feel" higher in terms of purchasing power than they do.) This was particularly true of the Federal minimum which didn't go up for a long time, while inflation did, but it may have been true of various State minimums also. I don't know about Washington's. It's currently the highest state minimum wage and has a cost-of-living increase 'ratchet mechanism,' but I think that's fairly new.

Also, FICA is definitely a tax; it's only due to what amounts to book-cooking politics that it's not formally considered one. If the government says you have to pay it, it's a tax by just about any practical definition.
posted by Kadin2048 at 5:19 AM on April 13, 2010

Just realized that I didn't factor in the standard exemption and deduction. So he may end up qualifying for the EITC.

Still you have pre-1975 to consider and you'd have to follow the eligibility criteria for the EITC back throughout time (using the Wash. State minimum wage) to see what he actually paid. I'm still not comfortable making the statement that he hasn't paid anything ever.
posted by Kadin2048 at 5:22 AM on April 13, 2010

If you have an hour to listen, Diane Rehm will be discussing how the tax burden is distributed on today's show. She & her guests usually do a pretty good job of getting past "talking points" and into meaningful discussion.
posted by headnsouth at 5:28 AM on April 13, 2010

You aren't going to be able to argue that he doesn't have the right to complain because he isn't paying for them. He is. The national social programs he's fuming about are largely paid through FICA, which is a tax on incomes. He pays FICA every paycheck.

Take a look at the numbers. Federal income taxes constitute just under 60% of federal tax receipts. About two thirds of that goes to defense. Social Security, the Mediplans, and unemployment are all paid for through FICA--though that's going to change this year, as Social Security receipts will fall below expenditures for the first time--which constitutes about 40% of the total revenue.

So he's paying for Social Security, Medicare, Medicaid, and unemployment insurance. He isn't paying for housing subsidies or TANF (formerly known as "welfare"), but those are necessarily tiny fractions of the big social safety net programs, as they have to come out of the $300 billion left of federal income taxes after the defense budget is factored out. That $300 billion funds the entire federal government.
posted by valkyryn at 5:41 AM on April 13, 2010

...even when he owned a condo, he paid cash and didn't have a mortgage...

How does one buy a condo with cash while earning minimum wage?

Not being a smartass, just wondering if I misunderstood the scenario here?
posted by rokusan at 5:47 AM on April 13, 2010

How does one buy a condo with cash while earning minimum wage?

Inheritance - it's in the OP.
posted by meerkatty at 5:52 AM on April 13, 2010 [1 favorite]

If your assumption that he never made anything but minimum wage (in other words no other inheritance, no side jobs, etc) then it is unlikely that he's paid any significant amount of income tax, although he is certainly paying FICA and sales taxes, so the "you're not even paying taxes, so STFU" argument isn't going to work particularly well.

It is worth considering whether or not you really believe that the amount one contributes to income tax is the basis by which we should determine whether or not a person has the right to complain or criticize what's going on.

Rather than trying to find some "gotcha" argument to dismiss his opinion, you could try to have an actual discussion about the relevant issues surrounding the existence of social programs and how they're funded.
posted by toomuchpete at 6:16 AM on April 13, 2010

Kadin has a point we were too flip to say he's never paid taxes w/o providing evidence.

Here is Washington State min wage back to 61

Here is the EITC data back to '75

personal deductions back to 1910

Standard Deduction back to 1970

I just threw this all in a spreadsheet and sort of half assed it - but when you add up all the parameters his AGI is something like 35% of the EITC most years - so yeah he's never paid income tax
posted by JPD at 6:41 AM on April 13, 2010

JPD, his AGI is over the 2009 limit. AGI is before exemptions and standard deduction.
posted by a robot made out of meat at 7:35 AM on April 13, 2010

that's what I get for half assing it. I only looked at the 70-90's 'cause I was so sure he didn't owe taxes today.
posted by JPD at 8:03 AM on April 13, 2010

How does one buy a condo with cash while earning minimum wage?
Inheritance - it's in the OP.

Oh. How does one learn to read more carefully?

posted by rokusan at 8:35 AM on April 13, 2010

not counting the two or three years he has been on state unemployment.

It'd be interesting to try to calculate, roughly, how much he's taken out of the system. How close is he to being net positive?
posted by Cool Papa Bell at 9:11 AM on April 13, 2010

Response by poster: Thank you for all of the answers and information. Like I said above

1) I'm not going to be using this in an argument, I was curious, and

2) Even if he's only paid in a fraction of what, say, I, have paid in during my "salad days" he still definitely has the right to groan about how it is spent.

I am in favor of progressive taxation (and equal representation, no matter how much tax is or isn't paid). I guess if anything has come out of this so far it's disappointment that he has, in fact, paid taxes--I don't think folks at his earnings levels should have to.
posted by maxwelton at 11:30 AM on April 13, 2010

Response by poster: CPB, I think his contributions to unemployment insurance would never have amounted to more than 2% of his pay, overall, and probably more like 1%, if I'm reading the funding mandates correctly. I believe very roughly that 40 years of contributions would pay for about one year at the minimum weekly unemployment benefit. (Turns out unemployment insurance is yet another regressive tax, who knew.)
posted by maxwelton at 11:34 AM on April 13, 2010

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