Who pays fed taxes in America?

April 16, 2010 9:45 AM

There's been a lot of news and talk about the Tax Policy Center's report that 47 percent of American's pay no federal income tax. Naturally the more rapidly Republican members of my family are repeating this ad nauseam to me. Can you point me to good links that factually refute this claim? Or is it in fact true? I'm not looking for debate, just facts about this claim.
posted by Unnecessarily Sarcastic Bitch to Work & Money (28 answers total)

Did you already see this?
posted by flabdablet at 9:49 AM on April 16, 2010

Ezra Klein discussed the claim yesterday on Maddow (April 15th, podcast is free).
posted by Beardman at 9:53 AM on April 16, 2010

Also a quick talking point to shut them down, remember that these people also definitely pay sales taxes, probably state and local taxes, and possibly even property and payroll taxes... and that's just off the top of my head.
posted by MCMikeNamara at 9:54 AM on April 16, 2010 [1 favorite]

NYTimes: Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47.
posted by ssg at 9:54 AM on April 16, 2010 [2 favorites]

"...taxes are at their lowest levels in 60 years. 'The relation between what is said in the tax debate and what is true about tax policy is often quite tenuous,' said Tax Policy Center co-director William Gale. 'The rise of the Tea Party at at time when taxes are literally at their lowest in decades is really hard to understand.' Nearly 47 percent of Americans will pay no federal income taxes for 2009 because either 'their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability.'"*

"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."*

posted by ericb at 9:56 AM on April 16, 2010 [3 favorites]

It's true. However, "paying no federal income tax" is not the same as "paying no taxes," or even the same as "paying no federal taxes." Most of those people are subject to payroll (FICA), Medicare, and Social Security taxes.

The reason the percentage is so high this year is because of Obama's tax cuts and rebates for the middle class, largely. So, if your right-wing family members are bandying this about like it's a bad thing, perhaps you can ask them why more people paying fewer taxes is something they disagree with?
posted by KathrynT at 9:58 AM on April 16, 2010 [2 favorites]

I found this really informative, albeit it's snarky: New Study On Taxes Shows Old Statistic That Will Be Misused Again

posted by anniecat at 9:58 AM on April 16, 2010

Ezra Klein discussed the claim yesterday on Maddow (April 15th, podcast is free).

"April 15: Rachel Maddow reviews some of the key arguments presented by Tea Party speakers at Tax Day rallies around the country and contrasts those arguments with the actual facts about the taxes Americans pay. The Washington Posts's Ezra Klein joins for analysis." VIDEO | 10:12.
posted by ericb at 10:00 AM on April 16, 2010

Unnecessarily Sarcastic Bitch: Naturally the more ra[b]idly Republican members of my family are repeating this ad nauseam to me.

Why is this a talking point for them? The report seems to me like an argument for closing a lot of Republican-driven tax breaks and loopholes. Is it some bizarre "so many people don't pay them anyway, so why bother?" argument?
posted by mkultra at 10:09 AM on April 16, 2010 [1 favorite]

As my accountant once brilliantly said, "if you're paying taxes, it means you're making money." The opposite is also, sometimes, true.
posted by Sophie1 at 10:14 AM on April 16, 2010

Here is Keith's Hennessey's in depth explanation.

FWIW, in his words he "served as the senior White House economic advisor to President George W. Bush. My job was to coordinate economic policy for the President, including macroeconomic issues, financial markets and institutions, tax policy, energy and climate change, health care, pensions, Social Security and Medicare reform, housing, transportation, technology and telecommunications, and agriculture. I also worked on budget and international trade and financial issues."
posted by turbodog at 10:35 AM on April 16, 2010

So, if your right-wing family members are bandying this about like it's a bad thing, perhaps you can ask them why more people paying fewer taxes is something they disagree with?

People aren't giving the OP's family members enough benefit of the doubt that they're not being utterly self-contradictory. Clearly there are conservative grounds for disliking a situation where only half the population is paying a certain tax, since this implies (to them) government redistribution of wealth. Someone who's in favor of a very flattened tax structure is naturally going to be averse to the idea that the top end pays disproportionately more in taxes.

The more useful information would be not just about federal income taxes, but all taxes, federal (not just income) and state and local. The first chart here shows the actual overall rates. This information is slightly out of date since it's from 2008 (and thus, of course, before the Obama administration), but I'm sure the tax structure (federal + state + local) hasn't changed too dramatically since then.
posted by Jaltcoh at 10:36 AM on April 16, 2010 [2 favorites]

Here's a PDF report (from the liberal Center for Tax Justice, the same organization that created the graph in my previous link) with up-to-date info, directly responding to your family members' talking point.
posted by Jaltcoh at 10:39 AM on April 16, 2010

It's true as far as it goes, but as has been pointed out already, the problem is that it isn't the whole picture. The single most burdensome tax in America is the payroll tax, FICA, which funds Social Security, the Mediplans, and unemployment insurance. This is sort of a "hidden" tax because it gets scraped right off the top and is matched 100% by employers, so in essence, 50% of the tax never even shows up on your paycheck.

This isn't "federal income tax," which is a vaguely progressive tax, but it's still a federal tax on incomes, so pointing out that half of the country doesn't pay the progressive part of the tax doesn't actually mean all that much. FICA is actually regressive, as there's a cap on how much income is exposed to Social Security.

This, unfortunately, isn't exactly the sort of "Nuh uh!" response the OP is probably looking for, but it does explain why the quoted figure, while true, doesn't actually mean quite what the teabaggers think it means.
posted by valkyryn at 10:40 AM on April 16, 2010 [1 favorite]

"Yeah, those people sure are lucky that they can hardly bring in enough money to feed their families, because now they don't have to pay a Federal income tax!"
posted by Citrus at 11:00 AM on April 16, 2010

"Yeah, those people sure are lucky that they can hardly bring in enough money to feed their families, because now they don't have to pay a Federal income tax!"

While I agree with the point you're making, the OP did say: "I'm not looking for debate, just facts about this claim."
posted by Jaltcoh at 11:12 AM on April 16, 2010

Clearly there are conservative grounds for disliking a situation where only half the population is paying a certain tax, since this implies (to them) government redistribution of wealth.

I think that gets at what's going on here. Conservatives* who don't think very critically look at their paychecks and see the deductions so they KNOW they pay taxes, it's just that 47% of Other People that doesn't. Or, I bet if you asked people whether they were in the 47% that didn't pay net income tax or the 53% who did, way way more than 53% would say (and honestly believe) they were in that 53%.

The first thing to do in refuting these claims from your relatives would be to ask them whether they pay taxes or not. Then ask to see their returns. I would not be surprised if at least a few of them who are middle-class with kids actually don't pay net federal income tax. For people who do pay net federal income tax, look at their tax credits and deductions. "One way to make more people pay taxes would be to abolish the tax credit for kids -- do you think we should abolish it, so that you'd also pay another $2000 in taxes but so would a lot of poorer people, or do you think this tax credit is legitimate?"

*I'm sure liberals who don't think very critically would do the same for some other issue, fine.
posted by ROU_Xenophobe at 11:22 AM on April 16, 2010

I meant to add:

On this year's 1040, there's no one entry to look at that shows whether you paid any federal income tax.

What you'd need to do is take entry 44 ("tax"), minus entry 54 ("total credits"), minus entries 63, 64a, 65, 66, and 67 (various other credits that are refundable)
posted by ROU_Xenophobe at 11:26 AM on April 16, 2010

I don't have a link for this, but it would be worth addressing with your family members the fact that this number takes each individual at a point in time, rather than taking individuals over their lifetimes. Therefore, it does not address the fact that many retirees do not pay into federal income tax but spent their whole working lives doing so and either wisely planned for a retirement with low/no tax burden, or are now frugally living on social security that they paid into their whole lives. It also does not address college students and other young people who are living very low income at the moment, and quite possibly without food stamps/TANF/etc, but who are doing so in order to earn greater incomes and contribute more to society later, including in income taxes.

Those two sectors of the adult population alone are pretty hefty. These are not necessarily things that might convince anybody of anything, just additional factors to discuss in the context of this, such as whether or not it would be better or worse if these two sectors of the population were actually paying more into income taxes. (What behavior would that encourage/discourage? How much revenue would it generate?) Going more into depth about what any given number means is often, in my experience, a good way to turn a confrontation into a thoughtful discussion about the issue, without just arguing about whether the number is correct or not. (I know my family members would just argue all day about whose numbers were right in that case, and that's not very productive.)
posted by gracedissolved at 12:15 PM on April 16, 2010

Whenever you think/talk/argue about federal income tax, it's important to keep in perspective compared to other sources of federal revenue. In 2008, fed. personal income tax was 46% of the federal government's revenue.

Also, while the number of Americans paying no federal income tax is a record high this year, it is not all that drastic of a jump. The number of taxpayers owing no taxes climbed steadily during the Bush administration, and people predicted that both McCain and Obama's tax plans would increase that number. As people explained above, it is largely because of the Obama economic recovery plan.
posted by stop sign at 12:56 PM on April 16, 2010

Let’s look at the single taxpayer. Everyone gets an exemption of $3,650 and a minimum $5,000 deduction, so taxable income does not start until $8,650 has been earned.

Assuming nothing else is involved, the 2009 rates on taxable income are:

10% on the next $8,025
15% on the next 24,525
25% on the next 46,300
28% on the next 85,700
33% on the next 193,150
35% on the rest

The tax rates have stayed the same for the last few years. The brackets go up a little each year, based on inflation.

If you make $48,650, your tax is about $6,350, or about 13% of your income
If you make $86,850, your tax is about $16,000, or about 18.5%
If you make $173,200, your tax is about $40,000, or about 23%

Is that a fair Federal tax burden? You can decide. I am a Republican, and this doesn’t strike me as outrageous. I remember the days of 70% tax brackets; that was horrible. Those were the rates that were finally abolished during the administration of Ronald Reagan.

Here is the National Taxpayer's Union listing of historical tax rates, for those who are interested.
posted by yclipse at 1:35 PM on April 16, 2010 [1 favorite]

i think the people who are crying about this may be more concerned with WHO THEY THINK isn't paying taxes, rather than the actual percentage.
posted by elle.jeezy at 1:45 PM on April 16, 2010 [1 favorite]

Looking at a basic figure of 154,345,853 tax returns filed in 2008 vs 2008 adult population of 228,182,000, that calculates as 32% of Americans who didn't file. If you factor in married couples that filed jointly then the percentage drops even further. Granted filing does not mean you actually paid taxes but it is a pretty good indicator.
posted by JJ86 at 2:28 PM on April 16, 2010

The numbers from yclipse look very right to me, and so easy to understand. And those figures are before any other deductions, right? So you would pay even less if you were married, deducted mortgage insurance, had kids, kids college expense, business expenses, etc. I've always thought the average was abut 15%, across the board, and yclipse's numbers seem to bear that out. I think that's a fair tax burden, myself.
posted by raisingsand at 3:44 PM on April 16, 2010

Jaltcoh and Citrus: Of interest is that the Wall Street Journal in 2002 coined the no doubt affectionate term lucky duckies^ for non-payers. It's actually an essential component of the debate today as a result.
posted by dhartung at 10:15 PM on April 16, 2010

I bet this also counts Americans living abroad, who have american tax liability but in general have income taxed only once, and first to the country in which they are living.
posted by cotterpin at 1:34 AM on April 17, 2010

Jaltcoh and Citrus: Of interest is that the Wall Street Journal in 2002 coined the no doubt affectionate term lucky duckies^ for non-payers.

I know about that. I'm not sure why you're directing this to me. I was just trying to help the OP in getting factual information, not opinions.
posted by Jaltcoh at 8:59 AM on April 17, 2010

valkyryn: It's true as far as it goes, but as has been pointed out already, the problem is that it isn't the whole picture. The single most burdensome tax in America is the payroll tax, FICA, which funds Social Security, the Mediplans, and unemployment insurance. This is sort of a "hidden" tax because it gets scraped right off the top and is matched 100% by employers, so in essence, 50% of the tax never even shows up on your paycheck.

This isn't "federal income tax," which is a vaguely progressive tax, but it's still a federal tax on incomes, so pointing out that half of the country doesn't pay the progressive part of the tax doesn't actually mean all that much. FICA is actually regressive, as there's a cap on how much income is exposed to Social Security.

Yes, the funding of FICA (i.e. Social Security) is via a non-progressive, capped flat tax (7.65% employee/7.65% employer, or 12.3% for the self employed) on earned income. Note: Medicare is funded via a flat non-capped tax and unemployment insurance is funded via an employer tax.

Although the payroll tax is viewed by many "progressives" to be highly regressive, it's important to keep in mind that the insurance benefits paid out from Social Security (retirement, survivors, and disability) are highly progressive. The lower your contribution income, the greater the proportionate benefit you are eligible to receive from the program. When viewed as a separate insurance program (as it was designed), Social Security is not regressive.
posted by Consult The Oracle at 7:51 AM on April 18, 2010