Who doesn't pay federal income taxes (legally)

[RecycleMichael]

http://economix.blogs.nytimes.com/2011/06/28/who-doesnt-pay-federal-income-taxes-legally/#more-116417

Who Doesn't Pay Federal Income Taxes (Legally)

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Conservatives are fond of railing against those who are able to legally avoid paying federal income taxes. The Wall Street Journal routinely refers to them as "lucky duckies." Senator Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, recently asserted that it was appalling that about half of all those who file federal income tax returns pay nothing and said this was proof that income taxes must not be raised to reduce the deficit, because the burden would necessarily fall on just half of households.

But the growth of the non-income-taxpaying population is largely a result of Republican tax policies. The earned-income tax credit is the main reason those with low incomes are largely exempted from federal income taxes. Originated by Gerald Ford, it was expanded by both Ronald Reagan and George H.W. Bush as a better way to help the working poor than raising the minimum wage, which they believed would increase unemployment.

According to the Tax Foundation, in 1974, before the earned-income tax credit was instituted, 19.2 percent of tax filers had no federal income tax liability. This rose to 25.2 percent in 1975 when the credit took effect.

During the 1990s, about 24 percent of filers had no income tax liability, but this number took a big jump during the George W. Bush administration as Republicans added a large child credit to the tax code. The percentage of filers with no income tax liability rose to 36.3 percent in 2008, from 25.2 percent in 2000.

According to new data from the Tax Policy Center, this year 46.4 percent of tax filers will have no federal income tax liability. Almost all of those in the bottom income quintile — those with incomes below $16,812 — will have no federal income tax liability this year. About three-fifths of those in the second income quintile will also have no liability, 30 percent of those in the middle quintile, and 7.3 percent of those in the fourth quintile. It is not only the poor who are exempt from federal income taxation; substantial numbers of households in the middle class are also exempted.

Surprisingly, a not insignificant number of those who are clearly well off are also among the "lucky duckies." There are 78,000 tax filers with incomes of $211,000 to $533,000 who will pay no federal income taxes this year. Even more amazingly, there are 24,000 households with incomes of $533,000 to $2.2 million with zero income tax liability, and 3,000 tax filers with incomes above $2.2 million with the same federal income tax liability as most of those with incomes barely above the poverty level.

It is not because of the earned-income tax credit or the child credit that the ultra-wealthy are paying no federal income taxes.

One reason, undoubtedly, is that capital gains are a huge percentage of their income and they may have losses from previous years to offset any realized gains this year. Perhaps some chose to invest all their wealth in tax-free municipal bonds. And, of course, a large industry of tax lawyers make their living advising the wealthy on how to minimize their tax liability by exploiting existing provisions of the tax law.

These data look only at legal tax avoidance; they do not account for illegal tax evasion, which is quite extensive, especially at the top and the bottom of the income distribution. Those in the middle class who have only wage income are much more limited in their opportunities for evasion.

The phenomenon of large numbers of non-federal income tax payers has long been a subject of debate. Those on the left emphasize that other taxes, such as payroll taxes, are paid by those with no income tax liability, a point I discussed last week. Those on the right often complain that it is fundamentally undemocratic for such a large percentage of the population to pay nothing to offset the federal government's general operations. After all, everyone benefits from national military spending and other federal programs.

Perhaps the right and left can at least agree that it is unseemly for those in the top 1 percent of income distribution, with incomes at least 10 times the median income, to pay no federal income taxes. It's not socialism to ask them to pay something.

[we vs us]

Bruce Bartlett's turned commie. 

[Conan71]

But the growth of the non-income-taxpaying population is largely a result of Republican tax policies. The earned-income tax credit is the main reason those with low incomes are largely exempted from federal income taxes. Originated by Gerald Ford, it was expanded by both Ronald Reagan and George H.W. Bush as a better way to help the working poor than raising the minimum wage, which they believed would increase unemployment.

You are aware, of course, that Congress writes tax code.  Unless I've had a lapse in memory, there was a Democratic majority in Congress under Presidents Ford, Carter, Reagan, Bush, and the first two years of Clinton's first term.  But, since the author wants us to believe this is the sole provenance of the president, where is his admonishment of the polices of President Obama?

I like how the author then meanders back to the Republican majority in Congress to finally try and paste all the blame on the Republicans.  It's most certainly not written with a bias.

Until we can get lawmakers to quit giving away tax cuts and more spending in exchange for votes, we've got a serious problem one that you and I both know will never stop.  One way we could arrest it on the tax cut/break/credit end is going to a consumption based tax like the "Fair Tax".

It's real simple.  Junk the current tax code, there's too many convoluted breaks, credits, and refunds and simplify it to a consumption based tax.  Set the rate, cap it, and base all spending on two years previous revenues.  You cannot spend more than is taken in because the kids in Congress and the last two Presidents abused their privilege with our credit card.

[Hoss]

You are aware, of course, that Congress writes tax code.  Unless I've had a lapse in memory, there was a Democratic majority in Congress under Presidents Ford, Carter, Reagan, Bush, and the first two years of Clinton's first term.  But, since the author wants us to believe this is the sole provenance of the president, where is his admonishment of the polices of President Obama?

I like how the author then meanders back to the Republican majority in Congress to finally try and paste all the blame on the Republicans.  It's most certainly not written with a bias.

Until we can get lawmakers to quit giving away tax cuts and more spending in exchange for votes, we've got a serious problem one that you and I both know will never stop.  One way we could arrest it on the tax cut/break/credit end is going to a consumption based tax like the "Fair Tax".

It's real simple.  Junk the current tax code, there's too many convoluted breaks, credits, and refunds and simplify it to a consumption based tax.  Set the rate, cap it, and base all spending on two years previous revenues.  You cannot spend more than is taken in because the kids in Congress and the last two Presidents abused their privilege with our credit card.

Will never happen, as much as we'd like to see it.  Too many large corporations enjoy paying less tax than they should because of the loopholes.  Junk the code and people will start looking.

Wasn't it GE that paid zero in US corporate taxes last year, or was that my memory failing me?

[Conan71]

Will never happen, as much as we'd like to see it.  Too many large corporations enjoy paying less tax than they should because of the loopholes.  Junk the code and people will start looking.

Wasn't it GE that paid zero in US corporate taxes last year, or was that my memory failing me?

Yes, and Jeffrey Immelt, the CEO of GE is pretty close with the Big O.  He's heading up a panel on competitiveness and jobs for the administration.

[TulsaMoon]

http://economix.blogs.nytimes.com/2011/06/28/who-doesnt-pay-federal-income-taxes-legally/#more-116417


Perhaps the right and left can at least agree that it is unseemly for those in the top 1 percent of income distribution, with incomes at least 10 times the median income, to pay no federal income taxes. It’s not socialism to ask them to pay something.

The top-earning 5 percent of taxpayers (AGI over $159,619) still paid far more than the bottom 95 percent. The top 5 percent earned 34.7 percent of the nation's adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.

http://www.taxfoundation.org/news/show/250.html

That line stinks. To say the top 1% pays nothing?? ooh look at the purdy rainbows...

[nathanm]

The top-earning 5 percent of taxpayers (AGI over $159,619) still paid far more than the bottom 95 percent. The top 5 percent earned 34.7 percent of the nation's adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.

http://www.taxfoundation.org/news/show/250.html

That line stinks. To say the top 1% pays nothing?? ooh look at the purdy rainbows...

This particular subject has been beaten to death here.

[Red Arrow]

The earned-income tax credit is the main reason those with low incomes are largely exempted from federal income taxes. Originated by Gerald Ford, it was expanded by both Ronald Reagan and George H.W. Bush as a better way to help the working poor than raising the minimum wage, which they believed would increase unemployment.

Since the minimum wage was increased, maybe we should get rid of the earned-income credit.  It obviously did no good.  We still have poor people.  Let's give the higher minimum wage time to work on its own.

During the 1990s, about 24 percent of filers had no income tax liability, but this number took a big jump during the George W. Bush administration as Republicans added a large child credit to the tax code. The percentage of filers with no income tax liability rose to 36.3 percent in 2008, from 25.2 percent in 2000.

According to new data from the Tax Policy Center, this year 46.4 percent of tax filers will have no federal income tax liability. Almost all of those in the bottom income quintile — those with incomes below $16,812 — will have no federal income tax liability this year. About three-fifths of those in the second income quintile will also have no liability, 30 percent of those in the middle quintile, and 7.3 percent of those in the fourth quintile. It is not only the poor who are exempt from federal income taxation; substantial numbers of households in the middle class are also exempted.

Darn Republicans, screwing the little guy again.

It is not because of the earned-income tax credit or the child credit that the ultra-wealthy are paying no federal income taxes.

One reason, undoubtedly, is that capital gains are a huge percentage of their income and they may have losses from previous years to offset any realized gains this year. Perhaps some chose to invest all their wealth in tax-free municipal bonds. And, of course, a large industry of tax lawyers make their living advising the wealthy on how to minimize their tax liability by exploiting existing provisions of the tax law.

I have no problem with deducting losses from previous years although I am aware some here will.  Tax-free municipal bonds typically have lower interest rates than taxable interest income.  Get rid of tax-free bonds and towns and cities will pay more for the money they borrow since the interest rates will necessarily be higher to attract investors. 

These data look only at legal tax avoidance; they do not account for illegal tax evasion, which is quite extensive, especially at the top and the bottom of the income distribution. Those in the middle class who have only wage income are much more limited in their opportunities for evasion.

When it's cheaper to pay a tax lawyer to find loopholes, tax avoidance will occur.  When it's cheaper to pay the tax than a lawyer, tax receipts go up.  Most of us don't have the income to be in that situation but look at the advertisements for places like H& R block.  For a fee, they will make sure you pay the minimum tax possible.  Turbo Tax is the same idea.

Those on the left emphasize that other taxes, such as payroll taxes, are paid by those with no income tax liability, a point I discussed last week.

Social Security benefits will be a significant portion of most lower income workers' retirement.  It may have been designed as a safety net but it is obviously much more than that now.  As such, I believe it is reasonable that payroll taxes be a higher portion of the lower income workers' tax load than for a higher income person's.

Perhaps the right and left can at least agree that it is unseemly for those in the top 1 percent of income distribution, with incomes at least 10 times the median income, to pay no federal income taxes. It's not socialism to ask them to pay something.

I think I understand this.  Poor people deserve to pay no income tax because they pay a lot of other taxes.  Rich people don't pay payroll taxes on any income, property taxes, excise taxes (on their expensive toys), sales taxes on more spending than most of us will ever be able to do.  Rich people only pay income tax and some of them don't even do that.  It is unfair that rich people don't pay income tax on tax free bonds that only give a reasonable rate of return because of the tax break that, as I mentioned above, allow all of us to benefit from lower cost of our cities borrowing money.  There might be some rich people not paying any taxes but I suspect that they are few when you include all the other taxes.