47% of American households pay no income tax

Posted on April 7, 2010

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A recent analysis by the Tax Policy Center has come to a surprising conclusion – surprising, anyway, to anyone who hasn’t looked at tax policy for more than three seconds. In 2009, 47% of American households will end up paying no income tax at all, with some even making a profit from various tax credits.

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.

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.

Quite obviously, these folks don’t entirely get out of paying taxes altogether. As the article mentions, many are still responsible for Social Security and Medicare payroll taxes, as well as the state and local income taxes that vary by locality.

Still … to have nearly half of the country basically exempted from the biggest cash earner for the federal government can lead to politicians buying votes with other people’s money. A middle-class family making $60,000 a year will have a greater tax burden than five college students, or the owner of a small business will have more of a burden than a few low-income workers – yet the government could and does tailor spending programs to benefit the blocs with the most votes at the expense of those who are paying more into the system.

That’s not always a bad thing – shared liabilities can help achieve social safety nets in times of trouble. But when “safety nets” evolve into “permanent entitlements” and a greater percentage of the country isn’t responsible for funding them, the danger increases of a real-life scenario where three wolves and a sheep get to decide what’s for dinner.

It’s evident to most Americans that the tax code is in major need of overhaul, as is government spending that is in dire need of being reined in . A value-added tax tacked on top of everything else is probably what we’ll get instead of tax reform, as the most important consideration isn’t what’s best for individual taxpayers or the health of the economy, but the ability of the government to feed itself from the wages of hard-working citizens.

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Posted in: News, Politics